Forex Forays

Still Here & Still Trading After a Wild Year

It's been a while, hasn't it? Sorry about that. Most of the silence has been simply because there wasn't a lot to report, since I stopped trading completely for a stretch of several months. During the financial chaos that was the end of 2008, a lot of my trading signals turned out to be worthless, and those promising results back in September 2008 turned into an ugly string of losses. Finally I just had to pull the plug on trading and sit on the sidelines while I reassessed my whole system. When the market hits the fan, sometimes you just need to watch from a safe place and preserve your capital.

I really should've posted about it here, I know, but at the time I wasn't really in the mood. And I also didn't have much time either, since I simultaneously had to redouble my efforts at my real, paying work [Internet stuff] to ensure I stayed financially afloat...which I have, fortunately. If nothing else, a bad streak in forex can remind you just how important your day job is!

But I also came through the storm that ended 2008 with some valuable data to run through my trading system. Maybe the most valuable data ever. It's not often you're able to forward-test your trading signals through one of the worst economic meltdowns in history. If you have a system that made good trade calls in those tumultuous conditions, and was making good trade calls before those conditions set in...well, you have a great trading system. So if you get nothing else from this post, get this - the forex market data from the past year or so is incredibly valuable.

What the data highlighted for me was that a dangerously large number of my signals made foolish assumptions about market conditions, and fell apart completely when those conditions changed. Another way of putting it is that these signals tracked correlations and assumed they were causations - but they weren't. Here's the most dramatic example: I had a signal that assumed that when Bollinger Bands were X pips apart, the EUR/USD pair would always go up. This looked logical because for a long time the EUR/USD trend was upward, and at the times it was going up, the BB bands were indeed more than X pips apart. Well, it turned out the opposite was true to...in a downward EUR/USD trend, the BB bands were also at least X pips apart...and now my trading signal was making all the wrong calls.

So my focus for the past month or so has been using the painful yet valuable results of this forward testing to identify and eliminate these false assumptions from my trading system. And just a few weeks ago I was confident enough in the new, improved system to take it back into the market with real money. So far results are good...it's made back about 400 pips. But whether that success will last is anyone's guess. Part of me feels like I have a winning set of trading signals. But another part of me feels like I'll be right back at the drawing board in a few months. Only the market has the answer to that conundrum. And even then, the answer may have an expiration date: "Signals Only Good Until __" After all, it's happened before. Hmm...maybe I need to start thinking of my trading system as a carton of milk.

Anyway, it's good to be back. I'll try to post more often now that I'm back in the market. Hope your trading's going well...and if it's not, remember the market is telling you something important, even if you don't want to hear it.

Labels: Errors, Forward Testing, Trading Systems

Over 800 Pips in September

I had a good run in September with just over 800 pips after accounting for FXCM's spread (which can vary a bit when trading with no dealing desk, but is generally around 2.5 pips for the EUR/USD). Almost all of it gained on going long the dollar, which strengthened quite a bit throughout the month. Nothing fancy, just one trade a day, doing what my trading system tells me.

So far I'm down 129 pips for October betting against the dollar, which looks ripe for a reversal but hasn't reversed yet. Congress finally passed the big bailout bill, and I'm curious to see how reaction plays out next week in the forex market.

Hope your trading's going well.

Labels: News

Crazy EUR/USD Chart - August 10, 2008

Check out this chart of the EUR/USD pair over the past few weeks. One of the most dramatic reversals from long to short on the Euro I've ever seen...look at that huge gap downward over the weekend of August 9-10. The recent decrease in oil prices has really taken a lot of the pressure off the dollar - and also lost me quite a few pips as I continued to bet against it. Only in the past few days have I started shorting the Euro and made back some of those pips - including almost 300 pips this past Friday. Now I'm wondering how the conflict between Russia and Georgia is likely to effect regional stability, oil prices, the EUR/USD and everything else...

Labels: Charts, EUR/USD

2008 Results So Far

I know it's been quiet around here lately, but I am still trading almost every day, focusing on strictly the EUR/USD pair. So far it has been a pretty good year, with around 1500 total pips in just over 6 months. July has been ugly so far, though, and I'm down over 400 pips for the month, mainly because the market has not been following a clear trend for these past few weeks. Here are my month-by-month results for 2008 so far:

January -168 pips
February: +404 pips
March: +964 pips (!)
April: +338 pips
May: -179 pips
June: +582 pips
July: -445 pips (as of July 16)

2008 Total: 1496 pips

I've made several revisions to my trading system this week that have hopefully corrected some of the problems that have led to the big drawdown this month. I'm also prospecting for new trading signals pretty intensively right now and will be integrating those into the system as I find them. At this point if I can at least break even in July I'll be happy. Hope your trading is going well!

Note to Self

I just came across this angry note I wrote to myself last year after a particularly bad run of trades that could very easily have been avoided. Ever had that feeling? I find it often helps to scribble something like this down immediately afterward to help get that awful sinking feeling out of your system, and to remind yourself of the lessons you've (hopefully) learned. Enjoy...

Exited trades too early
Set arbitrary and unnecessary stop losses
Allowed discretionary trading
Failed to trade at the right time

On the bright side, the lessons I learned from this nasty period led me to trade with much more discipline in the months that followed, and as a result I've been having a good run so far this year.

Labels: Discipline, Emotions, Errors, Psychology

Hivetrader Community-Based Trading

A while back FX Engines switched its strategy from automated trading systems based solely on backtested technical indicators to systems that are fine-tuned with input from a community of forex traders. To reflect this new community-based methodology, it's now called Hivetrader. Here's a quick breakdown of how it works, lifted straight from their front page:

You view the hive [the community of traders] to see the best community-created systems.
You copy hive systems.
You improve the systems and re-test them.
You trade the systems live with the dealer of your choice.

I used to play around with FX Engines quite a bit, and had some luck creating and trading with my own customized engines (as discussed in past posts on this blog). But I have absolutely no experience with Hivetrader (yet) and am quite curious how it's performing. So if you have any experiences you'd like to share, pro or con, lucrative or expensive, please share them by posting a comment below. Are you thriving in the hive, or getting stung?

Full disclosure: I have an advertising relationship with FX Engines/Hivetrader, but I promise to publish any and all feedback posted here, good or bad, as long as its on-topic and not spam.

Labels: Automated Trading, FX Engines