We are Pip Bandits

Follow many currencies?

2012-03-30T11:47:00.000-07:00

Many people ask how emerging economies should follow? When you begin to understand that they are overwhelmed with too much information. You can start thinking about all the different countries, depending on different economic data, especially from all the countries comprising the euro. You have not created a business model and philosophy does not digest and understand it. The truth is that there are a lot of financial information that the market does not care so you can draw directly from your list and do not worry about it. For example, the market does not care about the number of Japanese consumer price index, the market has a lot more important things to worry about.
When you have knowledge of how to determine the sensitivity of the market, you can monitor currency pair that you can know what is important and what is not.
Too much work?
While some entrepreneurs believe that after working eight major currencies too. Therefore, the USD, EUR, GBP and CHF, JPY, AUD, NZD, CAD work too.
If you feel discouraged me and I will only recommend starting with the U.S. after the major currencies as well as another of your choice, preferably in euros or pounds. So you can start at least after every other way the economy is to understand the strength of world economic currency.
When I started there after, I decided to do everything at once. The reason is that I do not want to spend six months in a single currency, then turn the other six months later. It will take years to get well at all. I do not want to take 5 years to learn a global macro.
I want to know how the forces of global macro and economic diversity can interact with each other and where everyone in the business cycle, the cycle of interest and how it affects the price.
Troubled global macroeconomic situation
If you think this is too much work then you can only choose to follow one or two countries. The only problem with this is that marketers get a description of only one or two types of economies in which the business cycle. The risk you run if you select only one or two currencies to follow is that you stick to trading the currency pair that is the trend and very unstable. There is nothing wrong with marketing nothing unstable currency pair. There are many ways to trade in a volatile market.
For example, if you choose to learn only the USD and CAD, then you become an expert in trading USD / CAD. And you definitely want to get some good business. But you will not achieve great 1000 pips global macroeconomic environment for the currency pair USD / CAD is not conducive to a great cause 1000 points. Interest there are only a big step.
Large movements of global macroeconomic
On the other hand, if you follow all the coins, then you will be able to benefit from the large difference between monetary policy in the U.S. and Australia to play the global trends in macro AUD / USD.
After all you want to trade volatility as a potential explosion is the largest and most viable. If possible, the largest ongoing acne. If you're stuck with only the knowledge of CAD and GBP economic environment, then the chances of achieving global trends in the current macroeconomic environment has been reduced, because the British economy is still weak and have just the opportunity for relaxation volume of traffic they deteriorate further. Canadian economy is doing better than the U.S. because it is a commodity economy, but have not increased, but due to slower U.S. growth and a strong Canadian dollar remained on their economies. So you have volatile price action on GBP / USD and USD / CAD currency pair.
Therefore, when I heard the news, expectations and global economic, chose to do it for eight currencies simultaneously. So I got exposure to all the different economies and how economic and international economic environment has affected everyone. I got exposure to risk and how to avoid the risk of them all. I get exposure to trading in different market environments, the Central Bank intervention, how the economic crisis in the currency pair, etc.
Not only develop tunnel vision and focus on one or two big currencies.
I'm just learning a lot about little.
I want to know a lot about multi-currency, with the right system for assessing the sensitivity of the market.
And so you can see great progress in the various currency pairs, not restricted to one or two pairs. You can turn your trading capital to benefit from changes in macroeconomic conditions globally in all different pairs

Sacrifice of a trader

2012-03-25T11:44:00.000-07:00

Looking back at my trip to the dealer finally hit me that many of them are ready to make the sacrifices necessary to become.
The most successful traders have to sacrifice a lot of time in their early years, so they have more money than their neighbors in the years after treatment for a good trader.
You have to sacrifice now for more money and success that your neighbor tomorrow.
There are many sacrifices that entrepreneurs may choose to do to succeed.
If you choose to spend the holidays this year and instead invest the money on hold, you are not sacrificing a lot of people do. You want more money for your trading today, so you can test your business ideas and get a feel for the market with money to live action. This increases the chance you have a revelation of order flow.
When you select a 3-week vacation that you are involved in a heavy flow of daily trading, and research spending, sacrifice, and not many people make.
If you choose to go home from your day's work tired and exhausted, but instead of watching TV, you put a summary of the flux of the order of market action, you make sacrifices, not many people do.
If you choose to wake up in the middle of the night before because you think the explosion of trade volatility is going to happen, you make sacrifices.
If you choose to cut funding over multiple representations of your care, you make sacrifices.
If you choose to spend less time with family, because you are trading order flow and execution of research, a sacrifice.
You make the necessary sacrifices now much more than most people in the future.
You make sacrifices today to become wealthy in the future.
You delay gratification today so you can very great satisfaction that most people my wildest dreams to have when you finally succeed.
People who choose not to sacrifice to become an operator is not possible to achieve success. You may not need all the sacrifices. But chances are that you need to make sacrifices in life.
Many traders make sacrifices and prospective cost-benefit analysis.
If someone is trapped in a cycle of novice operator elects to take a leap of faith to take the order flow analysis to try, they make sacrifices. They want to get out of their comfort zone to something new, whether the real reason why the market moves to try.
If someone chooses to 20 hours per week surfing the various trade forum to find the next hot robot or an indicator for shopping, rather than building a strong foundation of negotiations, they make a choice.
If someone chooses to pass around violin with consultants Metatrader code, or change the parameters of the stochastic and moving average, instead of carrying news, sentiment and the macro world, they make a choice.
If you make a list of people who succeed and those who held the poor, you will see that those who managed to sacrifice, and doing the right thing. He gives 110%
Those who do not are those who do not have the necessary sacrifices and can not do what it takes. They gave him a small portion of their time and attention, and thus fail.

Order flow trading

2012-03-18T11:44:00.000-07:00

Someone asked me the question, and wanted to know how the order flow, liquidity and efficiency to be determined.
Order Flow
I order the flow of the transaction flow. Do you want to enter a command and executed. This may come in the form of market orders, limit orders hitting the stands. Or come in the form of a limit order becomes the best limit order. Do you want to flow. Flow of a series of transactions in the market, and implemented. Or are there in large enough that you should consume limit orders at various prices. But a series of transactions and limit orders to touch at various price levels.
If a market order of $ 100 million consumers because they consume liquidity in the limit laws.
Order flow is usually in the form of market orders. These aggressive commands are generally necessary in order to drive the market.
There are other ways to make a transaction, or only a small number of transactions.
For example, if the limits of the best bid and best offer for a different limit switch, without the transaction price levels, this will cause prices to move. This is usually the time required is usually associated with a lack of liquidity and news. While some transactions are usually at different price levels, even if small.
Liquidity
I love a lot of liquidity to limit orders. If you use a limit order $ 50 million to 50 pips from market price, adding liquidity. Limit the number of the best order of liquidity in terms of size, and they distributed between minimum fluctuations.
For example, if $ 100 million limit order is available on the EUR / USD is the best bid / offer, $ 100 million will be distributed in an increase in the pits, this is a very liquid market.
There must be many orders to limit the liquidity to consume. Because if a large market order arrives, and you want to do, you need to seek liquidity in limit order.
When spreads are tight, it may indicate that a liquid market. But it is also possible that a tight spread, pray bid / best and next to a small limit order. It is likely to spread in EUR / USD a pip, but only 10 million dollars in cash pip.
See my article on what a liquid currency pairs.
The best is when market liquidity and tight spreads a large number of limit orders available on every pip.
Inefficiency
There are many inefficiencies in the market. There are opportunities for arbitrage, not the stop loss, etc.
Weak points you want to trade large market movements. The market moves higher, the greater the efficiency of my head.
Big market moves enough =
Do not forget that there is already a major market force, both in liquid and liquid environments.
Most likely, the market moves 300 pips and consume a large border to prevent the price movement guarantee. This is both in the country, sooner or later, as long as willing to take command of the limit order.
There is also a large market movements in illiquid environment, where a small limit order occur.
You can use both. Big market moves that occurred when the consumption of large limit orders are generally the most durable. This is usually the most durable because they are usually in the news / mood / core / macro forces on their side. This means that the result is a significant step

Win rate and risk reward part 2

2012-03-12T11:43:00.000-07:00

Frequency Trading
Already a trading system of the above. It's all pretty discretion, but the system is fixed.
You should be aware of the expected trading frequency.
Trading system to win most of the fire: low prices, high reward for the Risk System.
Trading system of the fire, the average signal: Winrate high-risk low-reward system
Trading system of the fire in the complete absence of signal: Winrate large, high-reward venture system.
Logical, no? The signal system was shot in one of the lowest in the most profit potential. Shoot your system, the average trading system more profitable. And finally a shot at the least sign of the most profitable.
Trade my winrate is low, high reward to risk ratio of the system, and keep me busy and occupied while waiting for the opportunity to go to a large vein winrate trading system. This is my trading philosophy.
What kind of system a lot of hedge funds and large trading? Many hedge funds trade at low win rate, high reward to risk ratio in the system. One reason is that they do not know how to trade better. But the bigger reason is that greater trade and position worth hundreds of millions of billions of dollars, this type of trading system that is capable of meeting the liquidity constraints and still generate a decent amount of wins is low signal, high risk-reward systems.
Also note that if you try, if the trade is a huge amount of capital above system, you can even destroy a profit because the market system can not handle it. Or what will happen, you can reduce the frequency of trades in the system, only those who can handle the large amounts of capital.
For example, if you have a trading system, which is 80% winrate, and won three times what the risk. The signals generated 25 per year. The signals generated 25 per year, if you try to trade for a small / mid-caps, say, a million dollars.
If you decide to trade such a system is a huge amount of capital, say $ 1 billion. Or you will destroy the system. Or even more likely that the number of signals that occurs every drop of the year. So if you are 25 years of trading signals every 1 million dollar capital system. If the "commercial" system $ 1 billion in capital, taking into account the new constraints and the liquidity effect of a larger order, you only get your 10 transactions per year.
How do I know these things?
I just know.

Notice that I did not mention anything to win the low rate, low risk reward ratio of the system, either by a high winrate, the risk reward ratio below 1:01. He did not mention them because they are not worth trading.
There is no reason for the trading system, which is a win rate of 80% and the risk-reward ratio of 0.50
There is no reason to trade the system a 30% winrate, where the prize is only twice the loss.
Not traded in the system.
Instead, a better trading system.

I hope you like the article.

Spot Forex and Future Contracts

2012-03-11T10:33:00.003-07:00

I’ve heard a lot and have been discussed a lot about Futures contract and Spot Forex. A lot of people try to argue that futures contracts are much “better” than Spot Forex. The term “better” here could interpreted in a way that it’s easier and more transparent to trade with. In this article, I’ll try to break through the argument.
People said that futures contracts are traded on a centralized exchange but likewise spot forex is not being traded on a centralized exchange. People talk about the “shaving” “shady” activities made by brokers since there is no centralized exchange and also regulated exchange. People talk about how broker profit from event such as news to widen spread or even to catch stoploss. Those who talk to me use such argument to talk down spot forex not to be traded with and there’re little way to profit unless you are a broker.
It’s correct that spot forex is decentralized market. From what I’ve seen, pricing is also a little bit different from broker to broker; and out there, there’re a lot of shady brokers with no real information who take advantage of trader to benefit themselves when they shading price and widen spreads or even take out stoploss when price isn’t reached there yet.
But the thing here to talk about is illiquidity and widening of spreads happened and currently happening a lot in futures contrack as well. First, we need to understand why spread is widening. Spread widening happened when there’s illiquidity in the market where there’re little sellers and buyers. That’s why we see spread in spot forex often higher during Asian market.
Forex futures has better spreads and more consistent pricing from what I see, therefore if you are a scalper or a short-term trader, forex futures could be your choice since a few pips could make such a difference. Most of my friend are arbitrage and scalpers in forex futures market and they are doing well since pricing is so consistent.
But the fact is that scalpers or super fast trading are not where the big money at. They are just a small swing that is a plafrom a big swing that is concurrently happening. I wonder why they are looking for 5 pips instead of 500 pips without much of that headache.
Scalpers may be trying to catch 5 ticks on Euro Futures Contract but I’m here to catch 50 pips on EUR/USD spot market. And for me, 0.5 pip of spread difference doesn’t really matter because I’m there for 50 pips, not 5 pips. As for 50 pips move, you’ll have more room for liquidity to play out rather than 5 pips move. For 5 pips move, a sudden swing could wipe you out. I’ll happy to let the arbitrageurs and quant funds try to grab that tenth of a pip or half a pip between platforms.
There’re theory about forex brokers do stophunting. I believe that they don’t do do that since they don’t have the required capital to do that. People who are doing stop-hunting are real traders, big traders or our competitor, they have to catch retail traders stops to benefit themselves and to send out a telegram to other big traders that they are actually stop-hunting and ready to move in another direction.
Remember the time when George Soros broke the Bank of England, he didn’t use futures contracts. He used the spot forex market. George Soros sold a few billions worth of pounds, profiting from the UK government's reluctance to either raise its interest rates and then converted them into Deutsche Marks. At that time there are also difference of pricing from broker to broker. But do you really think that he would care about it. He’s in there for the long-hunt and made a fortune and a few dollars difference won’t affect such a fortune. A little off spread cents wouldn’t have any significance either
Therefore I believe a few pip difference difference in pricing doesn’t really affect anyone performance since the moves are all the same.
I believe during the Soros time, in 1992, the spot forex markets are just as inefficient as today, with much more liquidity to boost. Therefore for those of you think futures contracts are “better” choice, please think it over.

Win rate and risk reward part 1

2012-03-07T11:42:00.000-08:00

Trading system and the position of many sizes depending on what level you are and what your reward is victory for the risk ratio.
Statistic is quite simple huh?
Steve Cohen, billionaire hedge fund manager using simple statistics as well. In a CNBC article: What Works Now SAC Capital, Cohen said:
We keep score with simple statistics, such as baseball. You obviously want your winning trade to make money more than you lose losing trade.The article then proceeded to say that the merchant is evaluated based on two basic dimensions: their win / loss percentage and the relative size of their wins and losses.
There are different flow systems that you can develop and trade. Some of them have a high winrate of 70% + but low risk reward ratio with the winner only made about 1-3 times what you bet.
Other stream order system has a low level of win / average around 30-60%, but the risk reward ratio is very high with the winner to make more than 4 times what you bet.
Then there was the remarkable trading system that has a high winrates SECOND appreciation for the risk ratio. They are the ones where you can go to jugularis on.Soros knew about this when he broke the Bank of England and take full advantage of both high perceived win percentage and high yield potential.
There are important differences between each of the trading system you need to know. There are certain market principles that if you try to challenge them, the market will only destroy you by giving you a lot of damage, loss, or blow your account.
Win High Level, Low Reward for Risk System
Listed system types can be listed with the percentage of low risk, or risk a high percentage. Because trading is a high winrate, they can not happen often. Therefore, if you choose to trade only with the percentage of low risk, you may not get the most bang for your buck.
Also because they take the risk reward ratio is low, the percentage of their business with low risk will not make you much money.
For example, say you have a high winrate, low appreciation of the risk ratio with 90% winrate, the risk-reward ratio of 1:1.
If you only trade the system with a 0.50% risk per trade, then you only make a maximum of 0.50% per trade. You can not make more than that in the trade as a reward system for low risk ratio ratio. The strength of this system is not in the business of winning. This strength in a large number of commercial consecutive win.Consecutive profit.
Therefore, with this system, you may want to try to trade using the system at greater risk of a trade of 0.50%. For example, if you listed the same system with the risk of 10% per trade of 0.50%, then assuming the same series of trade and trade your performance will be much higher return.
Of course you run the risk of suffering a loss in the first trade down 10%, which is undesirable. But the triumph of high levels of the system should provide compensation for the next series of trade.
Trading system with a high win the desired level and is generally preferred because of low probability trade suffered consecutive losses.
This is the type of trading system that is usually used if you want to quickly grow from a five-digit account number to the range of six to one million dollars in coverage.Once you enter the range of millions of dollars of liquidity constraints and protection of your capital becomes more important and you are under the risk of a trade Ratchet.
When you have to take account of five to one million figure you do not want to bet too much per trade. You do not want to bet your lifestyle.
The only goal of using high leverage and high risk of a trade so get your account up to a high enough level where you can Ratchet the risk of a trade and still achieve a significant amount of money.
Low / Average Win Rate, High Reward to Risk Ratio
This is the type of trading system that most traders are trying to grow. Specific to your technical indicators or chart patterns traders are able to develop a system with about 30-60% winrate, but with a very large winners to compensate the loss of trade.
There's nothing wrong with any system type. I did the trading system as well.
Due to the lower level you win, you have the possibility of consecutive losing trades is much larger. Because chances are you suffer consecutive losing trades is greater, you MUST use a low risk trade.
Try to trade this system using a commercial high-risk will turn into a disaster. You can catch a good winner, but volatility is obstruction of hair.
Say you have a system with a winrate of 30%, and your winner is six times what you bet.
If you decide to trade using a risk of 10% per trade, then you may be lucky and catch the winner in your first trade. If you have your account up to 60%. If you catch the other side of the losing series in a row, then your account will begin to decrease 10% per trade. And because you only have win 30% level, you can have 3, 4, 5, or 6 consecutive losing trades. If the series winner lost first place before you, you can go down 50% from your account before you see your first winner.
That's why this system is designed to be traded with a low risk trade. You can only truly open up the potential of this system if you use a low risk trade.
Low to win the low risk level requires the total trade. That is the main rule.
High rate winch system should not require a high risk of total trade. You can easily trade a high level using the low-risk win a trade and still get significant numbers.However, if you truly want to open up the potential of high-value system to win, then you should set the pot in addition to capital and trade system with a high risk per trade.
High won the high risk level requires total per trade if you want to unlock their full potential.
Win High Level, High Reward to Risk Ratio
Types of trading systems are some of the coolest around. This is the kind you dream of trading in your career. This is the moment when you can go to jugularis on them.
This is the type of trading system where you can have 70% + stage win, but still have abnormally high reward to risk ratio with a potential yield of more than five times what you bet.
This is the type of trade where you can make 50%, 100%, or 200% in a single trade.
Types of trading systems are very rare and do not shoot that often signal. But when they do so, you should take full advantage of them.
Types of trading systems should not be listed with a high risk per trade. Well you can do trading with a low risk trade.
However, if you want to get the full potential of this trade you will need to use high risk per trade.

Handling the losing streak

2012-03-03T11:40:00.000-08:00

Although the efforts of everyone in the formulation of trade, monitor and control your emotions, the period of inevitable loss can come. It is important to know the different strategies you can use to manage the time to lose. It is also useful to know the variables that can be tweaked to determine the style that suits you.
There are many ways dangerous and ultra safe way to handle the withdrawal period. Your choice which one you want to use.
You can change the variables
A. Trading Systems - If you do not believe in your trading system more, then of course you can switch to a system of completely new business.
Two. The risk of trade - can change the risk by trading more or less.
Three. Frequency of trade - can change how often you place an order on average higher or lower.

Strategies to attract the funding period
Now knowing the above variables, you can mix together to form a variety of strategies that can be used to manage the withdrawal period.
There are about 7 different ways to handle a series of losing trades. Seven different ways that you can draw period.

A. Major risks to business and commerce Increased Frequency trying to make money faster.
Suppose you're risking 2% per transaction and placing an average of 5 transactions per month. You fell 6% and try to recover. You increase the risk of trading at 3% per transaction, and at the same time you increase the frequency of exchanges on average 10 transactions per month.
This is definitely the most dangerous strategy that can feed itself and leads blown in the account.

Two. Increased risk of the trade to try to get money. You keep trading the same frequency.
Suppose you are risking 2% per transaction, and placed 5 trades per month. You fell 6% and try to recover. You increase the risk through trading up 3%, but keep the frequency of exchanges even close to 5 transactions per month.
This is the second most dangerous strategy, because while you hold the frequency of exchanges as well, you still increase the risk of trading.

Three. Keep the risk of the same trade. Increase the frequency of trading.
You do not take more risk in your trading. But you increase the frequency of exchanges in an effort to find other opportunities for a month. This is similar to the risks and dangers to number 2 above.

4. Keep risk to the same trade. Keep the frequency of exchanges as well. You just keep going and follow your system. No change.
Suppose you are risking 2% per transaction, and placed 5 trades per month. You fell 6% and to recover, you do not change anything. You still run the operating system you suspect you have an edge in the market. After all, if the system is good then your transaction will heal itself without changing any settings.
If your business system has real advantages, and you risk the right amount of trade which does not cause a significant loss if a series of consecutive losing trades happen, then you just have to keep doing what the risks and have the same amount and get the same job. Your membership will be recovered.
This is the strategy most likely to be implemented. It's right in the middle of a very dangerous strategy and ultra safe.

Five. Keep risk to the same trade, but a lower frequency of Commerce. This is starting to get more secure.
You do not risk more about your business. But you reduce the frequency of exchanges. So if you were to place five trades per month on average, you can cut two or three. Begin to be more selective in your trade and try to find the big winners. The best risk reward trade.

6. And finally, the safest is to reduce risk through trade and reduce the frequency of exchanges.
With this approach, you reduce risk by lowering trade and reduce your rate. If you have used a 2% risk per trade to five trades per month. You drop to 1% risk per trade and just looking for places 2-3 times per month.
Now you may ask, how are you supposed to recover from a draw when you reduce your risk per trade and reduce the frequency of exchange? This is where the big winners in. nailing Nailing of 5R, 10R, the 20R trade. You are more selective in your trading so hopefully your win rate increased slightly and / or your winners bigger.
This is by far the safest way to recover ultra withdrawal period.

There is another special method that involves a greater risk of the trade, but at the same time reduce your conversion rate drastically. So if you are risking 2% per trade and put the 5 transactions per month, you risk 5% per trade, and only put one or two transactions per month. How risky is this strategy will depend on what your system winrate. If you win the level very high, then it can work. If you win the level is low, then it could backfire and you have to choose one over the safety risks involved with reducing the trade and / or frequency of trading down.
The final method is to reduce the risk of trade, while increasing the frequency of exchanges.
Explain the relationship between risk and reward rate of victory in my previous post.

Futures and Spot Forex

2012-02-29T11:39:00.003-08:00

Some people argue that currency futures are "better" through trade on the forex market.
Let me break these arguments.
They argue that futures contracts are traded on a centralized exchange place against a centralized market. Then talk about how different forex brokers may offer different prices, because there is no centralized exchange regulated. Then talk about how Forex brokers retail prices can mask and expansion in the news. Some can even speak retail forex brokers "stop hunting."
It is true that spot forex is decentralized. It is true that the spot price of exchange may be different in different corridors. It is true that Forex brokers can dell retail prices. It is true that Forex brokers can extend the difference in the news.
But the truth is a lack of liquidity and widening spreads can easily occur in a futures contract as well. The widening spreads are not limited to the conduct of exchange.The widening spreads and is generally associated with the fact that the market is illiquid and buyers and sellers are hard to find. It is true that some forex brokers widen the gap in new detail above and beyond normal and keep them high for a prolonged period of time after a few press releases. I've seen it happen.
If this is the case, then you do not trade with that broker, or you can trade with a broker, organize everything around your strategy to avoid such situations.
Generally, people who defend the currency futures contracts are usually super fast sellers or traders who simply want to mark some of the market. If you are a businessman, then the currency futures may be better for you because you might be able to get better margins and more consistent prices. There are many arbitrage and market sellers of currencies.
In fact, the more money is not made or scalping price arbitrage between different platforms. The money and more money is made from the global macro trading.
The dealer may be trying to do 5 or 10 ticks in Eurofx futures contract. I do not care about these movements. I am afraid of catching the next 50 pips or 100 pips movement of spot market EUR / USD. I know I'll pay much more than trying to scalp a few ticks off of the futures contract. There is almost no space for the money if you catch Pip 100 movements for movement 5.
Who cares if the price is out for a tenth of a pip here, or half a pip between different forex brokers. If you are scalping for 5 or 10 pips, then you could take care of these things. But if you're looking for Pip 50 or 100 or 500 operations, so do not worry about the price discrepancy. That arbitrators and quantitative funds try to get that tenth of a pip pip or medium between the platforms.
When I PIP 100 profit on EUR / USD, I do not care if I have one tenth the price of half Pip or worse in the input and output. Of course, I enjoyed getting the best price possible, but I will not be Dick ICT. I will focus my efforts and energy on this problem. Instead, I worry about how to catch the next move of 100 or 500 pip pip. I know I'll do a lot more money from the scalp is 5 or 10 ticks on the market.
As currency traders to stop the game, not to do. They do not have the capital available to do this.
Forex Futures also limited in how you can express your business ideas and macro views. There are many liquid currency futures contracts. With spot forex can express the idea of the company and the macro point of the stronger currency and weaker than for what you believe If you believe that the AUD will be the strong yen and weak, then you can play in the AUD / JPY is not a problem. If you think the euro will be weaker and stronger CAD, then you can express that opinion in the EUR / CAD has no problem. In currency futures, not so easy.
When Soros broke the Bank of England, do not use futures. He used the cash currency market. He sold several billion pounds and became a value of DM. I'm sure the price between the various actors in the forex market is a small seed box. Prices may even have been off by 5 points or 10 points or more between different currency traders. He does not care. He was looking for someone to take the other side of your books commercial courts. He did not emphasize the difference in price of seed of certain riders. This was the last thing on your mind. He focused on global macro movement.
Just as we do not focus on one tenth of the difference pip pip or two or prices between the runners. Instead of focusing on catching the next big global macro movement.
Soros could never raised position of $ 10 billion short of forward currency contracts. It would be impossible. There was no money available for it. Instead, he focused on the inefficiency and liquidity in the spot foreign exchange market to express their idea of trade and macro-economic perspective and benefited greatly.
Foreign exchange markets over the place today are ineffective because they were in 1992, much more money to boot.

Warren Buffett's Qoutes

2012-02-01T00:47:00.000-08:00

Warren Buffett, yes, the name speaks for itself, one of greatest investor of all time and probably the best in my generation, who has built steady portfolio over a span of years until now. He's no doubt the very best out there, books written about him, movies starring hims, magazine have him on cover pages; the man are just so good at it, and today, I'll bring to you some of his quotes which I consider the best, which seems simple but simplicity is the name of the game.

On earnings: "Never depend on single income. Make investment to create second source."

For most people these days, they have a job and they earn a living from that job, despite of using that currently-free money to invest elsewhere, they insist on keeping it for future usages but they won't know that, in a year, price of certain good would be double, which in verse mean that their saving amount has been cut by half in value despite of save sum of money.

On spending: "If you buy thing you do not need, soon you have to sell thing you need."

Warren Buffett

On savings: "Do not save what is left after spending, but spend what's left after saving."

Saving first, keep yourself a safe boat when you have some trouble, but remember to invest afterward to make second source income.

On taking risk: "Never test the deep of water with both of your feet."

Meaning of this quote is that, never all-in in any situation but to test it first, if everything go according to plan, then make the full bet. For example, when you analyses a stock and you are certain that the stock is so bullish, you would need to test it first by for instant, buying 5 shares, if everything goes as what you expected, then buy another 10 shares, that would make it a safe bet.

On investment: "Do not put all your eggs in one basket."

This's another type of mistake that investor usually have, which's put all his/her eggs in one basket like betting all on a certain stock despite of diversify his porpolio.

On expectations: "Honesty is very expensive gift. Do not expect it from cheap people"

Don't expect too far and good things won't come from cheap people.

STOP SOPA

2012-01-31T07:56:00.000-08:00

Stop SOPA now! Join in with hundreds of thousands of other internet users to stop this legislation passing in Congress.

Big surge of buyers

2012-01-24T07:51:00.000-08:00

Yo, how you doing guys :)

A bit update from the last month contest, well, it's been like a whole month since the last contest, which I finish second, well it's a bit sad but it's well expected since I have very slim chance to overcome the odds. But I believe that my anticipation is right about the bull move. I did notice a big surge of buyers, greatest amount of buyers I've seen in last three month and in subsequent days, an even bigger surge of buyers stepped in, which result in almost 400 pips bull move this month so far. Well, not bad if I decide to bet but since I'm on vacation, therefore no trading until very next month, I think.There's no sign of stopping, no stopping volume, no No-Demand, there's still very big demand and I believe there'll be more upmove until the charts say otherwise :)

Here's a little chart, what do you guys think?

How to Choose a Forex Broker

2012-01-12T05:38:00.000-08:00

Babypips.com is where I start learning how to trade Foreign Exchange market and I believe that most aspiring traders should start there since they have an absolutely easy-to-understand, well-formatted forex school for all of trader wannabe. Not only it's easy to understand, the writer also use characters in babypips to make the school a funny place and a pleasant experience before trader step to the biggest challenge- actual trading.

Choosing Forex Broker is probably a kick-start for every wannabe, so choosing a good one is the first thing we have to do, and which's better place than babypips for a guide of "how to choose a good Forex broker".

Here's full article on how to choose a forex broker, full credit for babypips.com team, they've done an excellent work.
_______________________

With so many different choices out there, how does a Forex "newbie" pick a broker? Chances are most new traders have no idea on where to start - and that's okay! We're here to help! We have put together a simple three step process to help you find a broker that YOU think will best suit YOUR needs. You might be thinking now, "Three steps? That's it?" Yesssiirrrr!
In the first step, you will go through some of the main questions you need ask yourself when reviewing different brokers. Then you will take a look at different brokers and their available features. We have put together a comparison guide by taking some of the most frequently asked questions across the internet, and surveyed some of the most frequently asked about brokers out there, so that you don't have to.
With this guide, you can narrow your choices down and take the final step of talking with different brokers and demo trading on different platforms. Simple, right? Let's begin...

Step 1: Do your research

Before comparing brokers, do you know what to look for? No? Well, here are a few of the main questions you should ask yourself:

Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they're based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn't registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
How much or how little leverage will a broker give you? We highly recommend you review "Leverage the Killer"before deciding on how much leverage would be suitable for your trading style. The phrase, "Less is More," can save every newbie
Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading "micro" lots. Not every broker has this feature.
Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
Does this broker over premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?

Step 2: Compare brokers

Let's not beat around the bush, now you need go to Broker Comparison Guide.

Step 3: Open demo accounts and ask questions.

Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don't be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.
Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.

Meet Various Reputable Forex Brokers

Compare Different Forex Brokers

Regulaltion of Different Countries Regarding to Forex Brokers

Glossary

Broker: Common name used to define, generally, firms that act as the middle-man in the financial markets. There are two types of brokers, market makers (dealing desk) or ECNs (non-dealing desk).

ECN: Electronic Currency Network. Directs the client straight through the interbank market, usually resulting in tighter spreads. Most ECN's have a fixed commission per roun/turn lot.

Leverage: The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Lot: Pack in which trading units are being sent to the market. There are 3 types of lots: mini and regular. A micro lot consists of 1,000 units units of the base currency. A mini lot consists of 10,000 units of the base currency. A regular lot consists of 100,000 units of the base currency.

Margin: The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

Market Maker: Middle-man between the interbank market and the retail user. The interbank liquidity provider charges the market maker a small commission for providing access to tradeable volumes. The market maker also charges commission to its clients (in the form of spread, direct commission or both) to provide them access to tradeable prices in the currencies market.

Pip: The smallest price change that a given exchange rate can make.

Spread: The difference between the bid and the ask price of a security or asset.

STP: Straight Through Processing. It is the complete streamlining and automation of an entire transaction. In other words, as soon as a trade request is made, there's no manual intervention — gone is the to and fro of phone calls and faxes to authorize, confirm and settle trades. No manual intervention also, of course, leaves no room for human error.This allows traders to place orders that match off electronically with a broker's bank feeds without interacting with a “middle man” whose job is to try to make money trading between customers.

[Source: babypips.com]

Goldman Sachs rules the world?

2011-12-30T03:40:00.000-08:00

Maxine Croxall had a frank interview with BBC, he expects Eurozone market to be crashed and he did state a statement which may shock a lot of people "Goldman Sachs rules the world".

From what I'm seeing, the Euro was on the downfall against most major currency, it has been on the fall for the last two month, but last few days, I see big surge of buying on Euro futures, is it a sign of recovery. We'll see. We'll see what happen in 2012, it's expected to be an extraordinary year. We'll see...

Here's the full interview. What do you reckon?

VSA youtube channel

2011-12-30T03:23:00.000-08:00

Head off to youtube and search the keyword "VSA", you could find plenty of related videos, most are decent and good for newbie but the really genuine information that you all are looking for, only a few have it. And who is more trustworthy than my mentor :p He has his very own channel and share the info for free, all his knowledge and set-ups, his understand of the market, the truth behind market movement,.. not many videos but basically cover all your needs. Of course, you would need much more in order to start making money but this's a good start, so here's a few of his videos:

The truth behind price movement

&lt;p&gt;&amp;amp;amp;amp;lt;p&amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;br&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;br&amp;amp;amp;amp;amp;amp;amp;gt;&amp;amp;amp;amp;amp;amp;amp;lt;br&amp;amp;amp;amp;amp;amp;amp;gt;No &amp;amp;amp;amp;lt;/p&amp;amp;amp;amp;gt;&lt;/p&gt;

No demand and No supply explained, VSA

Trade diary, redistribution short set-up

Enjoy! You can subscribe to his channel, I'm sure you'll be swimming in a wealth of knowledge.

Peace!

Never say never

2011-12-30T02:26:00.000-08:00

Hello guys and girls!

I don't have any trades this week on trading account since it's holiday period as you all know, part of the reasons is because my lappy got infected and as a result can't seem to run now; every single time I touch on the keyboard, the screen turns black, can't do nothing about it...

However, there's an event that rescues this boring week which's the regular monthly contest held by Trade2win, this's a contest which has been running for a year now and I manage to win on 2 months, it's not a greatest achievement in the world but I'm happy that I'm the only one who manage to win it 2 times, it's not easy though, there're 80 traders who are actively battling for the prize. So, this month, I manage to stay 2nd place until now and today is the last day, I probably need a miracle to win it. It seems to me that the 1st place dude mirrored my trade and he got big winner as well as mine in the last trade, therefore the gap between he and I are staying the same, which's 10k by now. I need a great bull run today with maximum risk on and hope that he makes some mistakes in order to claim first place. Let's hope though. My anticipation is that there're a big buying surge emerged last few days, the current chart is also appear as head-and-shoulder formation, so I'm on the buy side. I don't know when the bull run will start, I really hope that it kicks off today. Never say never

Current Euro futures chart, I'm hoping for big bull run today...

VSA Bible

2011-12-29T06:01:00.000-08:00

Hi all,

My trading technique is Volume Spread Analysis aka VSA. It's something that seems pretty much difficult and like a superior technique compare to other normal trading methods like price action or indicators-based systems. Why is that so? Well, it has its very own reason, talking about VSA, we'll talk about volume, as we all know, volume is unmeasurable in Forex market, that's the main reason why there's a lot of debate not only before, but ongoing debate about volume application on Forex market. People are debating about it but the one who make it doesn't really care though, what they are caring about is their trading statement, they are making money off it month after month. Money is the name of the game, money is all we care about trading this game. If you have any doubts about volume in Forex market, I can reassure you that, volume in forex market is legit and we can make money off it by applying volume to our trading technique. I don't have to explain any further but trust me, learn how to use it and you'll have a worthwhile experience.

When I starting out, I'm also searching for the holy grail, well, it seems like a boring story already LOL, because it seems like every noob falls for it. I demo with without any success, well, it's rather that I'm too noob, don't know how to set-up EAs in MT4 rather than I'm actually been testing it. However, I always like the idea of managing the trade by myself, not to lay my fate in any automated program, part of it is because there're too much horror stories on the net about automated programs. I was never been scammed for any EAs though, quite proud of it, LOL. What should come has to come, the famous trading technique, Price Action Trading has taken me a hell lot of time, it suits me though, I love it and it makes a lot of sense. The only thing is "experience", I lack it, I lack experience. In order to trade PA, even if you learn it well, read every book about PA trading, psychology in trading, you still gonna lose it. There're no way, NO WAY, you'll make it without experience. You'll lose it first, because you could make it. Only 5% make it though lol

So, I've learn PA and doing Demo trading, joining a trading journal called meetpips, I have the chance to meet Marko c, I asked him about his trading technique and he recommend me VSA by Petefader... There you go, a legendary story starts... just kidding lol, so I met Petefader, he's like VSA Joda, he knows it so well that he could trade it so easily and successfully. After that, day after day, month after month, I trade along side Petefader, everything I got today is because of him, well, not to mention others on Forexfactory as well like Dr.Geppynius, Malcom, Intel... but they rather make it too complicated for noob, not like Petefader. I could say that everything I got today, I own him, he even let me participate in his paid trading room without paying a dime... I own him and I'll make him proud, one day I'll mention his name as my dearest mentor....

Ya, read on and I'll make a lot of posts about my lil' trading technique, hope that you guys can bear it lol

Cya all, have a blessing 2012 year.

Peace.

The Structure of Forex Brokers

2011-12-28T10:15:00.000-08:00

“Originally posted by Darkstar at Forex Factory.”

A pretty cool post by Darkstar on ForexFactory, he's also trading Order Flow Trading Method, which he claims to be its creator. There're debate about it but the guy definitely has decent knowledge about the market and its structure. It will takes time to read and learn, so enjoy.

Unlike the various bond and equity markets, the Forex market is not generally utilized as an investment medium. While speculation has a critical role in its proper function, the lion’s share of Forex transactions are done as a function of international business.

The guy who buys a shiny new Eclipse more then likely will pay for it with US Dollars. Unfortunately Mitsubishi’s factory workers in Japan need to get their paychecks denominated in Yen, so at some point a conversion needs to be made. When one considers that companies like Exxon, Boeing, Sony, Dell, Honda, and thousands of other international businesses move nearly every dollar, real, yen, rubble, pound, and euro they make in a foreign country through the Forex market, it isn’t hard to understand how insignificant the speculative presence is; even in a $2tril per day market.

By and large, businesses don’t much care about the intricacies of exchange rates, they just want to make and sell their products. As a central repository of a company’s money, it was only natural that the banks would be the facilitators of these transactions. In the old days it was easy enough for a bank to call a foreign bank (or a foreign branch of ones own bank) and swap the stockpiles of currency each had accumulated from their many customers.

Just as any business would, the banks bought the foreign currency at one rate and marked it up before selling it to the customer. With that the foreign exchange spread was born. This was (and still is) a reasonable cost of doing business. Mitsubishi can pay its customers and the banks make a nice little profit for the hassle and risks associated with moving around the currency.

As a byproduct of transacting all this business, bank traders developed the ability to speculate on the future of currency rates. Utilizing a better understanding of the market, a bank could quote a business a spread on the current rate but hold off hedging until a better one came along. This process allowed the banks to expand their net income dramatically. The unfortunate consequence was that liquidity was redistributed in a way that made certain transactions impossible to complete.

It was for this reason and this reason alone that the market was eventually opened up to non-bank participants. The banks wanted more orders in the market so that a) they could profit from the less experienced participants, and b) the less experienced participants could provide a better liquidity distribution for execution of international business hedge orders. Initially only megacap hedge funds (such as Soros’s and others) were permitted, but it has since grown to include the retail brokerages and ECNs.

Market Structure:

Now that we have established why the market exists, let’s take a look at how the transactions are facilitated:

The top tier of the Forex market is transacted on what is collectively known as the Interbank. Contrary to popular belief the Interbank is not an exchange; it is a collection of communication agreements between the world’s largest money center banks.

To understand the structure of the Interbank market, it may be easier to grasp by way of analogy. Consider that in an office (or maybe even someone’s home) there are multiple computers connected via a network cable. Each computer operates independently of the others until it needs a resource that another computer possesses. At that point it will contact the other computer and request access to the necessary resource. If the computer is working properly and its owner has given the requestor authorization to do so, the resource can be accessed and the initiating computers request can be fulfilled. By substituting computers for banks and resources for currency, you can easily grasp the relationships that exist on the Interbank.

Anyone who has ever tried to find resources on a computer network without a server can appreciate how difficult it can be to keep track of who has what resources. The same issue exists on the Interbank market with regard to prices and currency inventory. A bank in Singapore may only rarely transact business with a company that needs to exchange some Brazilian Real and it can be very difficult to establish what a proper exchange rate should be. It is for this purpose that EBS and Reuters (hereafter EBS) established their services.

Layered on top (in a manner of speaking) of the Interbank communication links, the EBS service enables banks to see how much and at what prices all the Interbank members are willing to transact. Pains should be taken to express that EBS is not a market or a market maker; it is an application used to see bids and offers from the various banks.

The second tier of the market exists essential within each bank. By calling your local Bank of America branch you can exchange any foreign currency you would like. More then likely they will just move some excess currency from one branch to another. Since this is a micro-exchange with a single counterparty, you are basically at their mercy as to what exchange rate they will quote you. Your choice is to accept their offer or shop a different bank. Everyone who trades the forex market should visit their bank at least once to get a few quotes. It would be very enlightening to see how lucrative these transactions really are.

Branching off of this second tier is the third tier retail market. When brokers like Oanda, Forex.com, FXCM, etc. desire to establish a retail operation the first thing they need is a liquidity provider. Nine in ten of these brokers will sign an agreement with just one bank. This bank will agree to provide liquidity if and only if they can hedge it on EBS inclusive of their desired spread. Because the volume will be significantly higher a single bank patron will transact, the spreads will be much more competitive. By no means should it be expected these tier 3 providers will be quoted precisely what exists on the Interbank. Remember the bank is in the business of collecting spreads and no agreement is going to suspend that priority.

Retail forex is almost akin to running a casino. The majority of its participants have zero understanding how to trade effectively and as a result are consistent losers. The spread system combined with a standard probability distribution of returns gives the broker a built in house advantage of a few percentage points. As a result, they have all built internal order matching systems that play one loser off against a winner and collect the spread. On the occasions when disequilibrium exists within the internal order book, the broker hedges any exposure with their tier 2 liquidity provider.

As bad as this may sound, there are some significant advantages for speculators that deal with them. Because it is an internal order book, many features can be provided which are otherwise unavailable through other means. Non-standard contract sizes, high leverage on tiny account balances, and the ability to transact in a commission free environment are just a few of them…

An ECN operates similar to a Tier 2 bank, but still exists on the third tier. An ECN will generally establish agreements with several tier 2 banks for liquidity. However instead of matching orders internally, it will just pass through the quotes from the banks, as is, to be traded on. It’s sort of an EBS for little guys. There are many advantages to the model, but it is still not the Interbank. The banks are going to make their spread or their not go to waste their time. Depending on the bank this will take the form of price shading or widened spreads depending on market conditions. The ECN, for its trouble, collects a commission on each transaction.

Aside from the commission factor, there are some other disadvantages a speculator should consider before making the leap to an ECN. Most offer much lower leverage and only allow full lot transactions. During certain market conditions, the banks may also pull their liquidity leaving traders without an opportunity to enter or exit positions at their desired price.

Trade Mechanics:
It is convenient to believe that in a $2tril per day market there is always enough liquidity to do what needs to be done. Unfortunately belief does not negate the reality that for every buyer there MUST be a seller or no transaction can occur. When an order is too large to transact at the current price, the price moves to the point where open interest is abundant enough to cover it. Every time you see price move a single pip, it means that an order was executed that consumed (or otherwise removed) the open interest at the current price. There is no other way that prices can move.

As we covered earlier, each bank lists on EBS how much and at what price they are willing totransact a currency. It is important to note that no Interbank participant is under any obligation to make a transaction if they do not feel it is in their best interest. There are no “market makers” on the Interbank; only speculators and hedgers.

Looking at an ECN platform or Level II data on the stock market, one can get a feel for what the orders on EBS look like. The following is a sample representation:

You’ll notice that there is open interest (Level II Vol figures) of various sizes at different price points. Each one of those units represents existing limit orders and in this example, each unit is $1mil in currency.

Using this information, if a market sell order was placed for 38.4mil, the spread would instantly widen from 2.5 pips to 4.5 pips because there would no longer be any orders between 1.56300 and 1.56345. No broker, market maker, bank, or thief in the night widened the spread; it was the natural byproduct of the order that was placed. If no additional orders entered the market, the spread would remain this large forever. Fortunately, someone somewhere will deem a price point between those 2 figures an appropriate opportunity to do something and place an order. That order will either consume more interest or add to it, depending whether it is a market or limit order respectively.

What would have happened if someone placed a market sell order for 2mil just 1 millisecond after that 38.4 mil order hit? They would have been filled at 1.5630 Why were they “slipped”? Because there was no one to take the other side of the transaction at 1.56320 any longer. Again, nobody was out screwing the trader; it was the natural byproduct of the order flow.

A more interesting question is, what would happen if all the listed orders where suddenly canceled? The spread would widen to a point at which there were existing bids and offers. That may be 5,7,9, or even 100 pips; it is going to widen to whatever the difference between a bid and an offer are. Notice that nobody came in and “set” the spread, they just refused to transact at anything between it.

Nothing can be done to force orders into existence that don’t exist. Regardless what market is being examined or what broker is facilitating transactions, it is impossible to avoid spreads and slippage. They are a fact of life in the realm of trading.

Implications for speculators:

Trading has been characterized as a zero sum game, and rightly so. If trader A sells a security to trader B and the price goes up, trader A lost money that they otherwise could have made. If it goes down, Trader A made money from trader B’s mistake. Even in a huge market like the Forex, each transaction must have a buyer and a seller to make a trade and one of them is going to lose. In the general realm of trading, this is materially irrelevant to each participant. But there are certain situations where it becomes of significant importance. One of those situations is a news event.

Much has been made of late about how it is immoral, illegal, or downright evil for a broker, bank, or other liquidity provider to withdraw their order (increasing the spread) and slip orders (as though it was a conscious decision on their part to do so) more then normal during these events. These things occur for very specific reasons which have nothing to do with screwing anyone. Let us examine why:

Leading up to an economic report for example, certain traders will enter into positions expecting the news to go a certain way. As the event becomes immanent, the banks on the Interbank will remove their speculative orders for fear of taking unnecessary losses. Technical traders will pull their orders as well since it is common practice for them to avoid the news. Hedge funds and other macro traders are either already positioned or waiting until after the news hits to make decisions dependent on the result.

Knowing what we now know, where is the liquidity necessary to maintain a tight spread coming from?

Moving down the food chain to Tier 2; a bank will only provide liquidity to an ECN or retail broker if they can instantly hedge (plus their requisite spread) the positions on Interbank. If the Interbank spreads are widening due to lower liquidity, the bank is going to have to widen the spreads on the downstream players as well.

At tier 3 the ECN’s are simply passing the banks offers on, so spreads widen up to their customers. The retailers that guarantee spreads of 2 to 5 pips have just opened a gaping hole in their risk profile since they can no longer hedge their net exposure (ever wonder why they always seem to shut down or requote until its over?). The variable spread retailers in turn open up their spreads to match what is happening at the bank or they run into the same problems fixed spreads broker are dealing with.

Now think about this situation for a second. What is going to happen when a number misses expectations? How many traders going into the event with positions chose wrong and need to get out ASAP? How many hedge funds are going to instantly drop their macro orders? How many retail traders’ straddle orders just executed? How many of them were waiting to hear a miss and executed market orders?

With the technical traders on the sidelines, who is going to be stupid enough to take the other side of all these orders?

The answer is no one. Between 1 and 5 seconds after the news hits it is a purely a 1 way market. That big long pin bar that occurs is a grand total of 2 prices; the one before the news hit and the one after. The 10, 20, or 30 pips between them is called a gap.

Is it any wonder that slippage is in evidence at this time?

Conclusions:

Each tier of the Forex market has its own inherent advantages and disadvantages. Depending on your priorities you have to make a choice between what restrictions you can live with and those you cant. Unfortunately, you can’t always get what you want.

By focusing on slippage and spreads, which are the natural byproduct of order flow, one is not only pursuing a futile ideal, they are passing up an enormous opportunity to capitalize on true inefficiencies. News events are one of the few times where a large number of players are positioned inappropriately and it is fairly easy to profit from their foolishness. If a trader truly wants to make the leap to the next level of profitability they should be spending their time figuring out how identify these positions and trading with the goal of capturing the price movement they inevitably will cause.

Nobody is going to make the argument that a broker is a trader’s best friend, but they still provide a valuable service and should be compensated for their efforts. By accepting a broker for what it is and learning how to work within the limitations of the relationship, traders have access to a world of opportunity that they otherwise could never dream of capturing. Let us all remember that simple truth.

A picture worth a thosand words

2011-12-28T05:18:00.000-08:00

The picture was taken from Paul Tudor Johns desk, in which there're a famed note which say "Losers average losers"...

Losers Average Losers

Mind over Market- Grkfx review [Part 6]

2011-12-28T04:48:00.000-08:00

Mind Over Market Part 6

Mark Douglas talks about how some people need to only start trading a small size. And that when you are only trading a small size most people do not think there is any point in it.

From an immediate money standpoint you will not make a lot. But when you can execute your system flawlessly then you can start trading the bigger sizes.

There are many traders out there who may be trading small accounts and wondering whether it is worth it. There are other traders who are perhaps saying to themselves that they will only start trading live when they have a good amount of capital behind them.

Other traders can blame the fact that they are losing money on not having enough capital. They think that if they just had another $50,000 or $100,000 dollars that it will somehow solve all the trading system and psychological problems that they may have and they will magically start making them money. They want to trade a large account while not even being able to trade a smaller size successfully. Those traders usually end up in a perpetual cycle of the blame game.

If you can’t trade $50,000 successfully, what makes traders think that if they had $500,000 they would be able to trade successfully? Most of the time there is no good reason.

There is one exception however. If you start trading a larger account and that causes you to get more serious about your trading and to execute your system flawlessly. It causes you to get serious because you may have a larger portion of your savings at risk and therefore it causes you to be more careful about managing risk and finding the good trades. It causes you to diligently keep a trading journal. It causes you to find the true reasons why the market moved and will move in the future. Then, in such a situation, you could potentially find yourself doing better with a larger trading account. But, most people don’t fall into that category.

Gutter Principle

The host asks whether or not you need to blow a trading account in order for you to be successful. I never blew a trading account, but I have taken some big losses throughout the years. As long any losses that you take causes a pain similar to that of a blown trading account, then you probably don’t need to blow a trading account.

Douglas: You have to learn to change the way you think about trading in a way where it doesn’t cause you to have this potential to think that you will be disappointed or betrayed or put you into a state of emotional pain. Getting to that carefree state of mind… Then everything about your trading will change.

Mark Douglas talks about the transformation of a traders psychological into that of a professional traders mindset. And that is definitely required no matter what trading style you have.

There is a separate transformation that other traders can take which is that of an order flow transformation. Where the traders choose not to view the market through technical indicators, or chart patterns, but rather through order flow and liquidity principles, news, global macro, market sentiment, stops, option barriers, expectations, positioning, etc.

Trading Edge

Mark Douglas then talks about what he believes a trading edge is:

Just simply a higher probability of one thing happening over another. Higher probability over a series of trades.

Every trader needs a higher probability of one thing happening over another in a series of trades. That is always a necessity no matter what trading system you have.

What the order flow trader does and how they define an edge is by having a higher probability of one thing happening over another on the very next trade. And then the next one, and the next one.

Subtle, yet profound difference. The order flow trader wants an identifiable edge on almost ever trade that they place, preferably a gigantic edge if possible. Is it always possible? No, but the order flow trader always strives for it.

The order flow trader does not want to take for a series of 50 trades for their edge to develop. They want their edge to be shown relatively quickly in a short series of trades, or preferably in the very next trade, and then in the next one, etc.

And in order to place such trades, you need to have a mastery of the order flow concepts as well as mastery of your own personal psychology.

Towards the end of the video with Mark Douglas on stage he talks about the trading profit gap. How traders who have a wonderful trading methodology with enormous potential to make a consistent income, but there is the profit gap. And how most traders try to fix it by learning more about the market.

Firstly I would say that there is always more to learn about the markets. Always new order flow generators, scenarios, global macro situations to learn about. More order flow and liquidity principles to learn and implement if you want to. So I would always like to learn more about the market.

Secondly, it is true that many traders can fix the profit gap by learning more about themselves. But in order to do that, you need to already have a trading system that has an edge.

If you already have a trading system that has an edge, then learning more about yourself can prove to be much better than learning more about the markets.

But if you do not have a trading system that has an edge, then you still have to learn more about the market in order to find a trading system with an edge. I talk about this in a previous article about how money management isn’t everything.

The problem lies in the fact that when a trader chooses to learn more about the market, the trader typically learns about more moving averages, more technical indicators, more chart patterns, more price patterns, more confirming tools, etc. All those things do not generate order flow.

I would not trivialize the importance of having a trading edge, preferably a massive trading edge. For if you have a big trading edge, an order flow edge, then it can overcome any slightly negative aspects of money management or psychology that you may have and still generate a healthy profit for you.

Instead of learning more about the things which do not move the market. Choose to learn more about the things that can actually cause markets to move. Things that can cause billions of dollars of aggressive order flow to be generated.

One of my biggest trading edges is not really my trading psychology. My trading psychology is probably no much more better than anyone else. It is my mindset about the trading system and knowing how to capture the big market moves. That is one of my biggest edges.

That is a big secret to the fast lane of trading riches.

[source: http://orderflowforex.com]

Mind over Market- Grkfx review [Part 5]

2011-12-28T04:45:00.000-08:00

Mind Over Market Part 5 of 7

Mark Douglas talks about how you need to be able to change the way you think. He is absolutely right.

Not only do you need to change the way you think about money management and trader psychology. Not only do you need to change the way you think about over trading. You also need to change the way you perceive the market information that comes your way during the trading day. Then you can become an order flow trader.

Douglas: Basically, all it really takes is a sincere willingness to do it. Honest to God. It is just like anything else in our lives. When we realize that there is a particular goal that we have and there is a strong desire to achieve that goal then we are going to take whatever steps we need to achieve it.

He is absolutely right. Just like I wrote about in a previous article. Everyone gets what they want out of the market.

The problem lies in that many people think they want to achieve a particular goal, when in reality they don’t. Or they want to achieve a goal, but their thinking and behaviors are not in congruence with achieving that goal.

For example, when I first started trading, I obviously wanted to make a lot of money and become financially free. That is what I thought I wanted. When in reality in my first year or two trading, what I really wanted was some form of action, adrenaline, doing something fun, a hobby. That thinking and the actions I took by placing ten trades a day in the currency markets was not congruent with making a lot of money. Eventually, I figured out that I was not going to be able to achieve my goals.

I was getting exactly what I wanted out of the market. I wanted action, adrenaline, and I got it by over trading and spending countless hours watching profit and loss gyrate back and forth.

The other thing that I wanted to do was to place really good trades and know why I should place them, why the market should move in my favor, and why I was able to extract profit from the market. That is what I wanted. My thinking was aligned to that goal. But my actions were not in alignment as I stayed stuck in the technical indicator, forex robot, chart pattern trading cycles. Those were not able to give me the edge I was looking for. They were not able to sufficiently explain to me why the market was making its movements.

And so, if someone really sets their mind to becoming an order flow trader, then they have in this website a resource that will drastically cut down the learning curve. If they are willing to work and be committed to making money and learning about order flow, global macro, and news trading then traders can read my forex factory posts, read this trading blog, buy the recommended trading books, buy my order flow mastery course when it is available.

Or you don’t have to read this blog if you don’t like it. But at least go out there and find the order flow and liquidity information somewhere. Whether you feel you are better served on a trading forum, or with some other book, or other trading strategy. Never stop searching for the true reasons why the market makes its movements. For the moment you are able to determine the true reasons and series of order flow triggers and scenarios why the market moves, then it will change your trading forever.

Douglas: What we set our mind at is how to change our mind.

Mark Douglas is absolutely right. You have to be willing to change your mindset. I had to do it on so many different levels. My views about money management, trading psychology, managing a trade, order flow trades, how to view the market, etc. It all involved substantial mindset shifts.

A lot of people are stubborn. They don’t want to change the way they think. They think they know best. I used to be like that as well. That was when I had trading cynicism. I didn’t make much money during that stage. Eventually, I figured out that I would rather stop being cynical and take the money.

Douglas: They have to eliminate the potential to think that the market is going to disappoint them.

Unfulfilled expectations can be a very powerful force that can work in your favor or against you. If you are disappointed after a trade, then the unfulfilled expectations will wreck havoc on your trading. On the other hand, if you can identify when the big players expectations have been unfulfilled and they are forced to do billions of dollars of aggressive position re adjustment, then those unfulfilled expectations can do wonders for your trading account.

Host: We did everything we could, we had our edge, it didn’t work out, move on. Douglas: That is all it really is. When you put on a trade and it doesn’t work, all it really means is this: Some other traders didn’t come into the market that had the same belief that you had or the same conviction that you had about this market doing whatever it is you thought it was going to do.

This is slightly mediocre thinking. It is good, but mediocre. The truth is that most traders, when they place their trades, think they have an edge. They do not actually have an edge. They think they have an edge, and then the trade doesn’t work out, and they move on.

The problem is that they were fooled into thinking that they had an edge. And since they were fooled, they will continue attempting to trade the same poor system again and again. That is how I was trading moving average crossovers, MACD divergences, and chart patterns for two years with no success.

Also, truthfully, most people do not do everything that they could to place the best possible trades. Most people only do the bare minimum. Most people only look at charts, and go find the patterns, or the indicators lining up. They love to do quick analysis. It is definitely quick, but it is the lazy way to trade. And the lazy way to trade does not mean that you did everything you could. I know about this stage because I was in it for two years. I thought I was doing everything I can, I even tried to do more by tweaking moving average settings or attempting to find the new holy grail indicator.

Eventually, I discovered order flow trading. That is when I realized most people do not do their very best. Most people are not going to attempt to find the stops and the option barriers. They are not going to attempt to read the news or figure out what it means. They are not going to attempt to figure out what the market sentiment, sensitivity, or positioning is. Most people are not going to analyze the global macro environment. Most people do not do those things, so they get poor or mediocre results. The traders that actually perform the order flow exercises and attain the skills are on the highest point on the trading profit ladder.

Mark Douglas then proceeds to talk about how most people are not good at predicting other peoples behavior. That is true for the above reasons that I mentioned. If traders focus on moving averages and chart patterns, then those will not help you much in predicting other peoples behavior. If however, traders focus on the order flow skills, then predicting other traders behavior and predicting the future order flow becomes much easier.

Douglas: You have to understand that there is no possible way that these mathematical formulas can predict the outcome of these patterns on a trade by trade basis. Only on a series of trades.

This is the same old trader trap of the mathematical formulas giving you a trading edge. If the mathematical formulas cannot give you a trading edge on the very next trade, then I would seriously consider purging them from your trading system. Does that mean order flow trading has 100% win rates? No, absolutely not. There are various forms of order flow trading. You can have high win rates with mediocre reward risk ratios. You can have high win rates with high reward risk ratios. You can have 50% win rates with high reward risk ratios. You can have low win rates with extraordinarily high win rates. All sorts of different systems that you can create using order flow knowledge.

Douglas: The odds are in my favor that somebody is going to come into the market and bid it higher from here if I bought or offer it lower from here if I sold.

I would say to take it a step further and place trades where you have the massive order flow, and thus massive odds in your favor where somebody has to come into the market to move it, for they have no other choice. To place high probability trades.

[source: http://orderflowforex.com]

Mind over Market- Grkfx review [Part 4]

2011-12-28T04:43:00.000-08:00

Mind Over Market Part 4 of 7

The interview starts off with Mark Douglas talking about how believing in a random result affects your expectations.

Douglas: We don’t want to get into trading with the possibility of being disappointed, dissatisfied, or betrayed. A lot of traders feel that way. The problem is, when that potential exists it has the affect of affecting the way that we see market information in detrimental ways.

Mark Douglas is absolutely right. Many traders, including myself when I first started, are afraid to take losses. I always wanted to be right. Every time I would take a loss I would feel the exact emotions above of disappointment, dissatisfaction, and betrayal. I couldn’t believe that the market could cause me such pain. After all, I was expecting my trades to be winners. I had back tested the chart patterns and technical indicators, seen the great trades and charts on the forums, so I thought that I was going to be a winner.

There were some problems with my chart and price pattern analysis that I only discovered at a later point.

William Eckhardt from the book New Market Wizards was asked why he doesn’t use chart patterns in his systems. The answer he gave was:

The human mind was made to create patterns. It will see patterns in random data. A turn-of-the-century statistics book put it this way: ’Too fine an eye for pattern will find it anywhere.’ In other words, you’re going to see more on the chart than is truly there. Also, we don’t look at data neutrally – that is, when the human eye scans a chart, it doesn’t give all data points equal weight. Instead, it will tend to focus on certain outstanding cases, and we tend to form our opinions on the basis of these special cases. It’s human nature to pick out the stunning successes of a method and to overlook the day-in, day-out losses that grind you down to the bone.

Eventually I didn’t just look at the time the chart patterns worked. I started spending more of my time on when the chart patterns failed – and failed miserably. That is where the order flow light bulbs turn on and the market epiphanies come.

Distorting Market Information

Mark Douglas then proceeds to talk about how traders have pain avoidance mechanisms that affect their perception. The trader who is in a trade that is moving against them, they will a tendency to focus on the information that they believe validates their trade and avoid the information that tells them the market is trending against them.

The way this manifests itself in trading is for example if you are in a long trade and the market has just taken out a low point and posted a huge down day. Instead of the trader focusing on the fact that their pain tolerance point was just hit and they should get out of the market, the trader can focus on the small upward retracements that occur in the market. The trader can just look at and focus on the small green bars, instead of the large red bars. That is for a chartists.

An order flow trader can focus on the small pieces of bullish news that he or she believe support the trade instead of the big bearish news that caused the market to sell off hard.

Which is why becoming an order flow trader, especially global macro and news traders, involves understanding and assigning importance to the information that is going to move the market. Knowledge of market sensitivity is crucial.

People can latch on to all sorts of different market information. The chartists can latch on to their head and shoulders pattern. The technical indicator trader can latch on to their divergence signal. The price pattern trader can latch on to their engulfing pattern at a major support/resistance level. The astrological trader can latch on to the planets aligning in a certain pattern. The order flow trader can latch on to a stop loss and option barrier location.

What is important is that the thing that you latch on to generates order flow and moves the market.

Mark Douglas offers some more words of wisdom:

Regardless of the reason for getting into a trade, if other traders don’t buy into that reason, or if other traders don’t have another reason to want to buy at a price that is worse than yours. You bought the stock at $10, someone is going to want to buy it at $11, buy it at $12, at $13, and not only be able to buy it at 11, 12, 13 and 14, there are going to have to take out all the offers, all the traders who think it is high at 11, 12 and 13. And so, if these people aren’t coming into the market to do that, then whatever reason you thought you had might not be so good. That is why it is critical to pre define your risk before you get into a trade. Professional traders do not think of it any other way because they know it takes other people. My reason might be great, but if someone else isn’t buying into it what different does it make? It doesn’t matter because it is not a winning trade.

This is a very important quote. Professional traders know it takes other people to move the market. They know it takes order flow.

Therefore it stands to reason that your analysis method, your reasons for entering a trade should be as closely linked to what the other traders are thinking about, and more importantly, what their future actions will be.

Why is it important to know what the market is currently thinking? Because if you know what the market is currently thinking, then you can project out future scenarios for what could happen. You can know what shocks to the market can cause order flow to be generated.

I do not go into trading with the expectation that my next trade or next series of trades are a random outcome. I go into trading believing that I will take small losses, but I never believe that my trades have a random outcome, for there are always order flow and liquidity reasons. Most of the time they are identifiable. Some of the before the trade and hence I place a trade. Other times in the middle of a trade, hence the management of trade occurs. Other times after the trade, where it is either a profit or a loss. If it is a profit then you can re affirm whether your analysis caused the market to move. If it is a loss, then you can examine what went wrong. Only on a small number of occasions do I attribute it to some fluke event.

Some more words of wisdom from Mark Douglas:

The pattern shows up first. Then what we have to do is put up our money. Meaning, how much am I willing to risk to find out if it will work. Most traders because they evaluate, because they judge and because they analyze and build a case for the pattern being right, they actually talk themselves out of believing that the risk even exists.

[source: http://orderflowforex.com]

Paul Tudor Jones's Perfect Failure

2011-12-28T04:18:00.000-08:00

PERFECT FAILURE

COMMENCEMENT ADDRESS TO GRADUATING CLASS OF

THE BUCKLEY SCHOOL

June 10, 2009

When I was asked to give the commencement address to a graduating class of 9^th graders, I jumped at the chance. You see, I have four teenagers of my own and I feel like this is the point in my life when I am supposed to tell them something profound. So thank you Buckley community for giving me this opportunity. I tried this speech out on them last night and am happy to report that none of them fell asleep until I was three quarters done.

When composing this message I searched my memory for my same experience back in 1969 when I was sitting right where you are. I realized that I could hardly remember one single speaker from my junior high or high school days. Now that could be my age. I’m old enough now that some days I can’t remember how old I am. But it could also have been a sign of the times. Remember, I was part of the student rebellion, and we did not listen to anything that someone over 30 said because they were just too clueless. Or so we thought.

Anyway, as I sat there considering this speech further, I suddenly had a flashback of the one speaker who I actually did remember from youthful days. He was a Shakespearean actor who came to our school to extol the virtues of Shakespeare. He started out by telling us that Shakespeare was not about poetry or romance or love, but instead, was all about battle, and fighting and death and war. Then he pulled out a huge sword which he began waving over the top of his head as he described various bloody conflicts that were all part and parcel of Shakespeare’s plays. Now being a 15-year old testosterone laden student at an all boys school, I thought this was pretty cool. I remember thinking, “Yea, this guy gets it. Forget about the deep meaning and messages in the words, let’s talk about who’s getting the blade.”

As you can see, I have a similar sword which I am going to stop waving over my head now, because A) I think you are permanently scarred, and B) the headmaster looks like he is about to tackle me and C) some of you, I can tell, are way too excited about this sword, and you’re scaring me a little.

I’m here with you young men today because your parents wanted me to speak to you about service—that is, serving others and giving back to the broader community for the blessings that you have received in your life. But that is a speech for a later time in your life. Don’t get me wrong, serving others is really, really important. It truly is the secret to happiness in life. I swear to God. Money won’t do it. Fame won’t do it. Nor will sex, drugs, homeruns or high achievement. But now I am getting preachy.

Today, I want to talk to you about the dirtiest word that any of you 9^th graders know. It’s a word that is so terrible that your parents won’t talk about it; your teachers won’t talk about it; and you certainly don’t ever want to dwell on it. But this is a preparatory school, and you need to be prepared to deal with this phenomenon because you will experience it. That is a guarantee. Every single one of you will experience it not once but multiple times, and every adult in this room has had to deal with this in its many forms and manifestations. It’s the “F” word.

FAILURE. Failure that is so mortifying and so devastating that it makes you try to become invisible. It makes you want to hide your face, your soul, your being from everyone else because of the shame. Trust me, boys—if you haven’t already tasted that, you will. I am sure most of you here already have. AND IT IS HARD. I know this firsthand, but I also know that failure was a key element to my life’s journey.

My first real failure was in 1966 in the 6^th grade. I played on our basketball team, and I was the smallest and youngest kid on the team. It was the last game of the season and I was the only player on the squad that had not scored a point all season. So in the second half the coach directed all the kids to throw me the ball when I went in, and for me to shoot so that I would score. The problem was that Coach Clark said it loud enough that every person in the stands could hear it as well as every member of the opposing team. Going into the fourth quarter, our team was well ahead, Coach Clark inserted me and thus, began the worst eight minutes of my life up until that point. Every time I got the ball, the entire other team would rush towards me, and on top of that, that afternoon I was the greatest brick layer the world had ever seen. The game ended. I had missed five shots, and the other team erupted in jubilation that I had not scored. I ran out of the gym as fast as I could only to bump into two of the opposing team’s players who proceeded to laugh and tease and ridicule me. I cried and hid in the bathroom. Well, that passed, and I kept trying team sports, but I was just too small to really compete. So in the 10^th grade, I took up boxing where suddenly everyone was my size and weight. I nearly won the Memphis Golden Gloves my senior year in high school and did win the collegiate championship when I was 19. Standing in the middle of that ring and getting that trophy, I still remember looking around for those two little kids who had run me into that bathroom back in the 6^th grade, because I was going to knock their blocks off. That’s one problem with failure. It can stay with you for a very long time.

The next time the dragon of failure reared his ugly head was in 1978. I was working in New Orleans for one of the greatest cotton traders of all time, Eli Tullis. Now, New Orleans is an unbelievable city. It has the Strawberry Festival, the Jazz Festival, the Sugar Bowl, Mardi Gras, and just about every other excuse for a party that you can ever imagine. Heck, in that town, waking up was an excuse to party. I was still pretty fresh out of college, and my mentality, unfortunately, was still firmly set on fraternity row. It was a Friday morning in June, and I had been out literally all night with a bunch of my friends. My job was to man the phone all day during trading hours and call cotton prices quotes from New York into Mr. Tullis’ office. Around noon, things got quiet on the New York floor, and I got overly drowsy. The next thing I remember was a ruler prying my chin off my chest, and Mr. Tullis calling to me, “Paul. Paul.” My eyes fluttered opened and as I came to my senses, he said to me, “Son, you are fired.” I’d never been so shocked or hurt in my life. I literally thought I was going to die for I had just been sacked by an iconic figure in my business.

My shame turned into anger. I was not angry at Mr. Tullis for he was right. I was angry at myself. But I knew I was not a failure, and I swore that I was going to prove to myself that I could be a success. I called a friend and secured a job on the floor of the New York Cotton Exchange and moved to the City. Today, I will put my work ethic up against anybody’s on Wall Street. Failure will give you a tattoo that will stay with you your whole life, and sometimes it’s a really good thing. One other side note, to this day, I’ve never told my parents that I got fired. I told them I just wanted to try something different. Shame can be a lifetime companion for which you better prepare yourself.

Now, there are two types of failure you will experience in life. The first type is what I just described and comes from things you can control. That is the worst kind. But there is another form of failure that will be equally devastating to you, and that is the kind beyond your control. This happened to me in 1982. I had met a very lovely young Harvard student from Connecticut, dated her for two years then asked her to marry me right after she graduated from college. We set a date; we sent out the invitations; and all was fantastic until one month before the wedding when her father called me. He said, “Paul, my daughter sat me down this afternoon, and she doesn’t know how to tell you this, but she is really unhappy and thinks it’s time for you two to take a break.” At first I thought he was joking because he was a very funny guy. Then he said, “No, she is serious about this.” I thought to myself, “Oh, my God, I am being dumped at the altar.” I’m from Tennessee. Getting dumped at the altar was the supreme social embarrassment of that time. It was a big deal. When all my family and friends found out, they were ready to re-start the Civil War on the spot. I had to remind them that the last Civil War didn’t go so well for our side, and I didn’t like our chances in a rematch. The reality was that I was a 26-year old knucklehead, and since all my friends were getting married, I kind of felt it was time for me to do the same thing. And that was the worst reason in the world to get married. I actually think she understood that and to a certain extent spared me what would have been a very tough marriage. Instead, I’ve had an incredible marriage for twenty years to a wonderful wife, and we have four kids that I love more than anything on Earth. Some things happen to you that at the time will make you feel like the world is coming to an end, but in actuality, there is a very good reason for it. You just can’t see it and don’t know it. When one door closes, another will open, but standing in that hallway can be hell. You just have to persevere. Quite often that dragon of failure is really chasing you off the wrong road and on to the right one.

By now you are thinking, how much longer is this loser going to keep on talking. My kids are all teenagers, and whenever I’m telling them something I think is important, they often wonder the same thing. But the main point I want you to take away today is that some of your greatest successes are going to be the children of failure. This touches upon the original reason I was invited here today. In 1986, I adopted a class of Bedford Stuyvesant 6^th graders and promised them if they graduated from high school, I would pay for their college. For those of you who don’t know, Bed-Stuy is one of New York City’s toughest neighborhoods. Even the rats are scared to go there at night. Statistically about 8% of the class I adopted would graduate from high school, so my intervention was designed to get them all into college. For the next six years, I did everything I could for them. I spent about $5,000 annually per student taking them on ski trips, taking them to Africa, taking them to my home in Virginia on the weekends, having report card night, hiring a counselor to help coordinate afternoon activities and doing my heartfelt best to get them ready for college. Six years later, a researcher from Harvard contacted me and asked if he could study my kids as part of an overall assessment of what then was called the “I Have a Dream” Program. I said sure. He came back to me a few months later and shared some really disturbing statistics. 86 kids that I had poured my heart and soul into for six years were statistically no different than kids from a nearby school that did not have the services our afterschool program provided. There was no difference in graduation rates, dropout rates, academic scores, teenage pregnancies, and the list went on. The only thing that we managed to do was get three times as many of our kids into college because we were offering scholarships whereas the other schools were not. But in terms of preparing these kids for college, we completely and totally failed. Boy, did this open my eyes. That was the first real-time example for me of how intellectual capital will always trump financial capital. In other words, I had the money to help these kids, but it was useless because I didn’t have the brains to help them. I had tried to succeed with sheer force of will and energy and financial resources. I learned that this was not enough. What I needed were better defined goals, better metrics, and most importantly, more efficient technologies that would enable me to achieve those goals. What that whole experience taught me was that starting with kids at age 12 was 12 years too late. An afterschool program was actually putting a band-aid on a much deeper structural issue, and that was that our public education system was failing us. So in 2000, along with the greatest educator I knew, a young man named Norman Atkins, we started the Excellence Charter School in Bedford Stuyvesant for boys. We set the explicit goal of hiring the best teachers with the greatest set of skills to be the top performing school in the city. Now that was an ambitious goal but last year in 2008, Excellence ranked #1 out of 543 public schools in New York City for reading and math proficiency for any third and fourth grade cohort, and our school was 98% African American boys. We never would have done that had I not failed almost 15 years earlier.

So here is the point: you are going to meet the dragon of failure in your life. You may not get into the school you want or you may get kicked out of the school you are in. You may get your heart broken by the girl of your dreams or God forbid, get into an accident beyond your control. But the point is that everything happens for a reason. At the time it may not be clear. And certainly the pain and the shame are going to be overwhelming and devastating. But just as sure as the sun comes up, there will come a time on the next day or the next week or the next year, when you will grab that sword and point it at that dragon and tell him, “Be gone, dragon. Tarry with me and I will cut your head off. For I must find the destination God and life hold in store for me!” Young men of Buckley, good luck on your journey…..

Mind over Market- Grkfx review [Part 3]

2011-10-23T04:40:00.000-07:00

Mind Over Market Part 3 of 7

Mark Douglas talks about the patterns in collective human behavior. And when a set of criteria is present in the market, there is a higher probability of one thing happening over another.

That people, that other people will come into the market to bid it higher, or offer it lower form here.

Now if you are a quant or looking to be a quant, then I suppose you would look for mathematical equations. But I don’t using too much math in trading, so I stick with order flow, global macro, news, sentiment, etc.

There are absolutely patterns in the market. The difference is that one trader may want to look for mathematical equations, or break down the data points into mathematical equations, and thus formulate a entry and exit criteria.

While the other flow trader is far more likely to find order flow and liquidity patterns. They use these to formulate a liquidity model and mental model of the market. They use it to get into the heads of the market participants and figure out what they are thinking. They find order flow, liquidity, news, global macro, sentiment, stops, option barrier, sensitivity patterns within the market. Then they break them down into an entry criteria and exit criteria.

And that is the difference. One person chooses to find and look for mathematical equations, while another chooses to look for order flow and liquidity patterns.

I prefer the order flow, liquidity, global macro, news, sentiment, etc patterns. I prefer them because I believe they are closest to what truly generates order flow. When I see a 500 pip move occur, I do not assume that a mathematical equation can describe that. I just look for order flow triggers, global macro triggers, stops, etc. I feel that is closest to what makes the market move. Another person may disagree and believe that the mathematical equations cause people to enter the market to bid it higher, or offer it lower.

Mark Douglas then states that the problem is that the patterns repeat themselves on a random basis. He again talks about the mathematical criteria.

And that is the difference.

I do not look for mathematical criteria. I do not expect such mathematical algorithms and formulas to move the market or generate a lot of order flow. I look for order flow and liquidity reasons for the market to move. And as such, I do not subscribe to the belief that the patterns repeat themselves on a random basis. I believe that you can even achieve consistency in a small series of trades if you pick and choose them carefully. There is very little randomness to a series of consecutive order flow winning trades.

The host then explains that mathematical models cannot predict human beings. They seem to be contradicting their own arguments.

The way I see it: If mathematical models cannot predict human beings, then why use them?

The way I see it, if they do not predict human beings, then throw them out, and go figure out what tools, techniques, mindset, and strategies actually can predict human beings. Then you know what will cause people to enter the market to move it.

Douglas:We are obliged to other traders to come in to buy something at a worse price than what we thought was low to make us winners. (for a long trade) Host: Most of us out there are dependent on someone else to move the market for us. We are trying to identify that pattern.

And that is what order flow trading is about. When you place a trade, even when the big players place trades, they require some other traders to come in to enter the market and move it further in your desired direction if you want the trade to be a winner. Small traders, even big traders are dependent on someone else to move the market for them. Now the big players have the ability to move the market to hit some stops, but they still need stops to get triggered to make a profit.

This is where the video gets interesting. Douglas says the trades are a random event. They state that they have reduced the market down to the terms that it takes someone else to make you a winner.

The part about requiring that someone else make you a winner is true.

Douglas: When you put on a trade do you think about who might come into the market to make you a winner? Host: No, of course not.
Douglas: If it turns out to be a winning trade do you know who that trader was or who those traders were that made you a winner?
Host: No
Douglas: Is there any way to know?
Host: No

Then they joke around about how you can’t figure out who the other traders were that were providing liquidity to you to make you a winner.

Then they state that when a pattern presents itself, they don’t have any idea who will move the market for them.

Difference Between Order Flow Mindset and Mediocre Mindset

This is where the glaring differences between order flow traders and the other traders show themselves. Some traders would just joke around about how you cannot figure out who was providing liquidity to you to make you a winner.

The order flow traders does not treat it like a joke. They prefer to know, as many times as possible. Now technically they cannot truly know in the sense that they are not 100% sure who was on the other side of the transaction. But they can certainly break down the market into various participants, such as breakout traders, macro traders, chartists, retracement buyers, etc.

The order flow traders never wants to place a trade unless they have a strong idea who will move the market for them. Every single time I place a trade I always want to know what will cause prices to move. I want to know what scenario or trigger I am betting on. Otherwise I do not place a trade. There is no reason to place a trade unless you have some expectation or edge of knowing what stands a higher probability of happening.

Mediocre traders believe that there is no point in analyzing who may or may not come into the market to move it. They consider it a fruitless exercise.

Order flow traders on the other hand believe it is one of the most critical aspects of any trading edge.

Douglas: The trading errors come from believing that when the pattern is present that it is going to give me a winning trade on this one. This trade is going to be a winner. Host: You can’t think that way.
Douglas: That is how the typical trader thinks. The typical trader thinks I am not going to put this trade unless I think it is going to be a winner. It skews our expectations.

The typical traders does think that every trade is going to be a winner. The reason why that skews traders expectations is because the typical trader does not have a good enough reason rooted in order flow and liquidity for their trade to be a winner. The typical trader believes their moving averages, stochastics, and chart patterns are going to move the market. Thus the typical trader thinking. The typical trader thinks they have an edge, when in reality they do not.

As an order flow trader, I always think every trade is going to be a winner. Otherwise I would not place them. Do I have 100% winners? Of course not. When I take a loss and I mad or angry? Of course not.

But I still always expect every trade to be a winner. You may assume that if I take a loss that my expectations were unfulfilled and that can cause disastrous consequences.

Here is the difference between the typical trader and the order flow trader. The order flow trader can believe that many trades can be a winners because they actually have a system rooted in order flow and liquidity that has an edge. The typical trader cannot believe that every trade will be a winner because they do not have such a system.

The order flow trader wants to place really good trades each and every time. That is what they strive for. They always want to either have higher win rates or better reward risk, or a combination of both over the typical trader.

That edge in knowing what particular scenario, order flow trigger, or market participant you are betting on is what will enable you to place better trades. You will know when to cut losses better and you will know when you are able to go for the jugular. Thus, enabling you to reach the higher points in the trading profit ladder.

[source: http://orderflowforex.com]

Mind over Market- Grkfx review [Part 2]

2011-10-20T04:37:00.000-07:00

Mind Over Market Part 2 of 7

Douglas then talks about how to accept the randomness principle, which is to accept the fact that any trade event can be a random unique outcome, but that can produce a consistent result over the long run. He then talks about how traders who fail to acknowledge this principle will find that trading can be very frustrating.

I disagree slightly with this mindset. I do not believe that a trade, or series of trades are random. I believe there are very good order flow and liquidity reasons for the market to be making such movements. That doesn’t mean that order flow traders should expect 100% winrates or even close to that – they shouldn’t. But what I am saying is that believing in the randomness principle is more of a path to mediocrity. George Soros did not embrace the randomness principle when he broke the Bank of England and made $1 billion in a day. He discovered the order flow generators and triggers for a big move and went for the jugular. He knew there was nothing random about the markets movements in the weeks before Black Wednesday and the weeks following. He knew there were good order flow and liquidity reasons.

Instead of believing in the randomness principle, I believe in the taking losses principle. Everyone will need to take trading small losses, and should preferably keep them small. As an order flow trader I always still acknowledge that. But acknowledging that you will have losing trades is very different from believing that the trade of a series of trades are random. When I take a loss, very rarely is it due to the markets noise or a random event. It is usually due to some wildly unexpected event, wrong interpretation of the order flow situation, or my own greed and fear. Very rarely is an order flow traders loss due to the “randomness” of the markets.

Mark Douglas then proceeds to explain a bit about technical methods:

Technical methods define and identify patterns and collective human behavior. The patterns definitely exist, they repeat themselves over and over again. The problem is that the outcomes do not always correspond with the patterns on a trade by trade basis.

Now applying my order flow mindset to the above quote, I would say to find order flow and liquidity patterns that identify the market participants behavior. Find the order flow generators and scenarios that consistently generate order flow, preferably a massive amount of order flow. Some small tweaking of the parameters and triggers can be needed on a day by day basis. The patterns exist. The repeat themselves over and over again. And yes, there are patterns that have an extremely high correlation between the outcome and the pattern on a trade by trade basis.

The host of the show then interjects and says:

If the last trade was a winner, this trade, even if the charts are the same, even if the same exact signal, the same looking chart, there is no guarantee this trade, that this trade will be the exact same as the past one.

And this is the path that many traders fall into. Obviously the same trading signal will not be exactly the same. You can’t have the market posting the exact up and down gyrations each and every single time. The market will not make the same movements to the exact pip value and tenth of a pip value. That is obviously not possible.

However, the trap the host of the show falls into is that he states that “even if the charts are the same, there is no guarantee this trade will be the exact same as the past one.” Presumably he is referring to a previous winning trade. And that is the trap. He states that “even if the charts look the same”, thus implying that the system’s signals are based on chart patterns.

Of course the next trade can be a loser even if the charts look exactly the same!

How is that so? Well the charts do not measure what is going on outside of them. The charts cannot measure what is happening off the charts. The charts alone cannot tell you where all the stops are, the cannot tell you where all the option barriers are. The charts alone cannot tell you what billions of dollar of order flow expectations are riding on. The charts alone cannot tell you how the market is positioned. The charts alone cannot tell you what the global macro outlook is. The charts alone cannot tell you what the market sentiment is. The charts alone cannot tell you what news was released and how important it is.

And as such, they cannot tell you the real reasons why the market moved and will move the in the future. Which is why it is obvious that even if the charts are the same the next trade can be a loser even if the previous one is a winner. Now obviously the host does not know about order flow trading, but it is still interesting to see how many people are still stuck in the technical mentality and chart pattern mentality.

Mark Douglas then talks about how there is a “random distribution between wins and losses over any sequence of trades that you might look at.” He then talks about thinking in terms of probabilities.

And yes, order flow traders should think in terms of probabilities. They want the probabilities in their favor. You want sufficient win rate coupled with sufficient reward risk ratio in order to have a winning trading system. But I never think in terms of a random distribution of wins and losses. For I always know that I can tighten my trade parameters to nail a big winning trade, if I so choose to. It involves more work, more research, and more patience, but I always know that with order flow and liquidity knowledge, you can find very good trades that do not fall into the trap of “random distribution.” If the trade happens to be a loser, then I take the loss, figure out what went wrong, acknowledge and develop new order flow generators, scenarios, etc, and move on the next trade. I almost never try to attribute the loss to “random distribution.” That is just the way I view the markets.

Then the host asks the question to Mark Douglas about how does a trader who “has their charts lined up.” There comes the fallacy. The belief that if the charts line up then your trade has a certain success rate.

I don’t want the “charts to line up.” Most of the time I don’t care what the charts look like. I want the order flow to line up. I want the news to line up. I want the global macro situation to line up. I want the market sentiment, sensitivity, and shattered expectations to line up. Then I know a good trade has come.

Finally, Mark Douglas talks about the big difficulties with trading:

Now we have to get into the nuts and bolts of how the markets work. One of the reasons why people have such a difficult time with this is because their initial exposure to the markets themselves is through electronics. Through electronics there is a real disconnect between what your are actually participating in and what is causing you to want to participate in it in the first place. Markets started as exchanges. All prices are people generated events. Everything happens because of what people believe.

The most important points are that prices are people generated events. That is how it was 100 years ago, and still is today. Notice how prices are not MACD generated events. They are not stochastic generated events. They are not chart pattern generated events. They are not forex robot generated events. They are people generated events.

Knowing that, it doesn’t take that much of a leap of faith to assume that price movement is a result of people generated events as well. Prices move due to people generated events. Order flow and transaction flow.

Even with the rise of some quants, and high frequency trading, etc, the markets are moved by people making decisions. You are not going to see a 1,000 pip gradual move based on some algorithms battling it out. The price movements are people generated events.

And since they are people generated events, it pays to know what these types of traders are thinking. Especially the big traders, and big groups of traders that can move the market. It pays to get into their heads to understand what they believe the market sentiment is, how they view the news, what their expectations are, what is their current positioning and how much more they can put on, what are their profit objectives, what are their pain tolerance points, what they are sensitive to, etc.

I highly doubt a 300 pip move is caused by a MACD divergence, for price movement are people generated events.

Mark Douglas talks about how prices actually move and how there are traders who actually trade at a level who can move prices, and it is their intention to move prices.

Mark Douglas says:

What actually has to happen for prices to move is this: If the last price of something is $10, for the market to actually move to $12, all the offers at $11 have to be taken out. In other words, people who are trying to sell at $11 they have to get their orders filled before they can get to $12. For someone to actually bid it to eleven, or bid it to twelve they are doing the exact opposite in that moment of what it takes to be successful. They are not buying low, they are buying high. They are buying high relative to the last price, or buying higher relative to the last price.

Mark Douglas gives words of wisdom about having to understand how prices move. Then they will understand how their technical method relates to this movement.

I would say once you understand how prices move, do not go to technical methods. Instead go directly to order flow and liquidity methods that can actually explain why prices move. Why would you want to go from understanding how prices move to loading up your charts with technical indicators and mathematical formulas that are just so far removed from what generates order flow? Despite that logical reasoning, there are still many traders attempting to do trade using those technical methods. Their choice. I wish them well.

For the rest of you, skipping to the higher points on the trading profit ladder can be of earnest interest.

[source: http://orderflowforex.com]

VSA resources

2011-10-01T01:21:00.000-07:00

I'll keep you guys update with lot of VSA ebook, pdfs etc which I have, it's all basic but a pre-requisite requirement for anyone who want to master Volume Spread Analysis.

Download "Master the Market by Tom Williams" HERE

Download "VSA summary" HERE

Download "Rediscover the Lost Art of Chart Reading" HERE