Truth About FX

In this episode of Truth About FX, Walter digs into the subject of counter trend trading and different between counter trend and trend traders. And, how do you find out which one are you?

According to him, each traders differs based on their style and beliefs.

Download (Duration: 03:52/ 4.43 MB)

In This Episode:

00:40 – broad sense

01:51 – ride the trend

02:34 – quick and dirty

Tweetables:

Work with your beliefs instead of going against them. [Click To Tweet].

You do not have to trade with the trend.  [Click To Tweet].

Traders out there are more likely to not want to ride the trend.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. I’ve heard that trend traders are usually mostly counter trend traders. What do you think about that?  

Walter: I disagree. What I would say is there’s different styles of trading but, in a broad sense, you could say that that people are counter trend trader but, actually, there are other sort of traders. There’s reversion to the mean traders.

I guess you could call them counter trend trader but, really, all they are looking for is a directionless market that gets a whack of it and they trade it back to the mean. Then, there are break out traders.

They wait for the market to get really, really quiet and do hardly anything. When everyone is relaxed and gets about that market, boom! It breaks out and they take a trade. It is not really as simple as trend and counter trend.

Probably the reason why a lot of people look at it that way is because we’re taught and we’re beat over the head of this idea that you must trade with the trend. That is not necessarily true.

You do not have to trade with the trend. You can do really well as a breakout trader or as a reversion to the mean trader or even as a counter trend trader. I do not think that we should say that.

I will say, though, traders that I’ve tested, most traders I’ve come across who have taken my trader personality, they come out as a counter trend trader. In other words, most of the traders out there are more likely to not want to ride the trend.

What does that mean? They are reversion to the mean trader or a counter trend trader or whatever, I do not know. It just means that they do not like this idea of jumping on the trend for what it’s worth.

That’s what I found and that is usually around 70 to 75% of the traders out there. They are not as comfortable taking with the trend trades.

Hugh: Interesting. I’ve never heard of that style before.

Walter: Okay, cool.

Hugh: Is there any way that you can tell if you are better as reversion to the mean trader or a trend trader or something like that?

Walter: Yeah, absolutely. I’ll put a video down below on the shownotes for this episode and you can just go to that video. It’ll basically give you a quick and dirty tes...

In this episode of Truth About FX, Walter digs into trading distractions and how to get away from them. He advices on focusing on what you want to achieve and creating your own trading rules.

You will also find here an interesting MP3 that can help you trade in the right mindset.

Download (Duration: 04:03 / 4.63 MB)

In This Episode:

00:37 – when waiting

01:35 – relaxed and focused

02:25 – trading station

03:46 – quieter mind

Tweetables:

Dedicate a trading station. [Click To Tweet].

Help yourself to focus on what you need to accomplish.  [Click To Tweet].

Create a trading rule to help you resist distractions.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. What are some of the distractions that I may not be aware of but can be reduced while I am trading that will help me out?

Walter: The obvious one are going to be like Facebook or Youtube or whatever you do when you are waiting, that sort of thing. When I first started trading, and I was really bad at it, I used to listen to MP3s.

My friend and I who were just getting into trading, we had one computer that was for trading and we had another computer that used for just to have the music on it. What I would do is, typically, I would plug into the music and just listen to it all night long.

This was in California. So, I was watching the London session all night long and just droning on, had this headphones on and that was a distraction for me because I was getting so nervous watching these lower timeframes charts.

I wanted something to calm me down. I’ll put something in the shownotes that maybe something that you want to use . We’ve got this in the forum but you can have this downloaded.

What it’ll do is, basically, put you in the right mindset so when you do sit down to trade, you are very relaxed and very focused. I would encourage traders to — even if you trade the weekly charts — just listen to it like I do before you sit down and make your trading decisions.

That’s probably the best use of it. If you are trading the lower timeframes and you are actually watching the market unfold then, definitely, you want to do something like this to get you into that frame of mind.

It sounds weird and you’ve got to use earbuds for it but it will put the brain into a right state, a relaxed and very focused state to trade. That is what I would do. You can obviously have a rule like no Facebook, no Youtube, do not watch TV, like Bloomberg or whatever.

You want to dedicate a trading station. It is a place where you go to do your trades and make your trading decisions even if is not bumping off trades on a 15-minute charts, even if it is just moving to break even on a daily charts.

The point is you’ve got to have that spot when you can do that and, other thing is you can work on your own focus.

In this episode of Truth About FX, Walter talks about the art and science of trading. Should you stick to what your system’s rules or should you go with your instinct?

Walter suggests a little of both. He talks about “conscientiousness” and how knowing this can affect the way you approach trading.

Download (Duration: 03:43 / 4.25 MB)

In This Episode:

00:49 – strictest interpretation

01:21 – loosey-goosey

02:56 – personality test

Tweetables:

Risk less per trade. [Click To Tweet].

How many winners do you get in a row in the beginning?  [Click To Tweet].

Take a test with a smaller account.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. How much of trading is art and how much is science? For example, if I see a Big Shadow but it isn’t quite perfect, should I take it or should I stick to the strictest interpretation of the rules?

Walter: What a great question, Hugh. What do you think? What do you say to this? I know what I think but I am just curious what do you think.

Hugh: My impression would be first, stick to the strictest interpretation of the rules, backtest that and see how it goes. See where you can put some of the art into it like bend some rules a little bit and, without a doubt, it makes sense. What do you think?

Walter: Yeah, totally. I think this is going to come down to personality. It is going to come down to your style. For example, some people just do not like breaking the rules. They are going to need to have a checklist, they are going to have follow a system. They want to have a framework.

Other people are going to be a little bit more loosey-goosey. They are going to allow for more interpretations. Here is what I would say, if you know that you are one of those people that, in Psychology, they call it “conscientiousness”.

I’ll put a link in the shownotes here. You can take a personality test — and it is not an IQ test so it has nothing about your intelligence which we all know the intelligence test in Psychology is absolutely awful. That is a totally different story.

The point is, take that test and see if you are high on conscientiousness. You’ve probably already know if you are. If you are, what that probably means is you need some defined rules.

For example, if you are going to trade a big shadow which is, of course, a special case of an engulfing candle, you might need to  have a rule where you say “Look, if I am taking a big shadow trade, a bullish big shadow, the close needs to be in a top 15% of the candle.”

Likewise, if I am taking a bearish big shadow, the close of that candle needs to be in the bottom 15% of that candle. That would be my approach. If you are already asking yourself, “Should I take the strictest interpretation of the rules?” Then, maybe it means that because you are already questioning it that is not something for you.

Maybe, instead,

In this episode of Truth About FX, Walter digs into the topic of hitting a drawdown and what you should do — or shouldn’t do — when the inevitable happens. He gives some useful points on risk reduction, trade exits, and what to do when you’re getting at a confidence downhill.

You will also learn from Walter’s own person experience.

Download (Duration: 08:36 / 9.84 MB)

In This Episode

00:38 – 60% drawdown

02:07 – massive winner

03:54 – fine tune

05:24 – potential path

07:36 – complex issue

Tweetables

Risk less per trade. [Click To Tweet].

How many winners do you get in a row in the beginning?  [Click To Tweet].

Take a test with a smaller account.  [Click To Tweet].

Interview Transcript

Hugh: Hi, Walter. We’ve got a question that came in through email. This trader says he did a ton of backtesting.

He was super positive that his system will be profitable and then what happened when he first start trading live was that he hit a drawdown of 60% at his first month.

He is asking: “What should I do from here? Did I mess something up or did I miss something?”

What do you think about that?

Walter: I know this trader and this is a really good question. I know that he is not the only who’ve experienced this. Basically, when I took him through, I said “Look, before you went live, did you go through your numbers?”

I’ll put in the show notes below this episode a link that you can use to go to a risk calculator and figure out what your risk was. A risk of that drawdown, because he had a drawdown of 60%.

I asked him “Look, did you go through and check that out?” and he said, “Yes, I went through it and I plugged it into my data for my trading system and I have a risk of 60%, drawdown was like 10%.”

Okay, that was his risk.

He could have reduced that risk — so he wanted 10 — he could have reduced that risk if he decided to trade less per trade. Risk less per trade, he could have done that.

The other thing that I’ll mention here — and this is probably something that a lot of people might not even realize because he was using or is using a trailing exit.

What that means is he’ll have to get a lot of trades under his belt before he sees his reward to risk ratio really inflate. The reason why that is is because, of course, he will occasionally get a massive winner using a trailing exit and that will inflate the average winner.

But, in the beginning — unless he gets lucky and locks into a really good runner — in the beginning, he is probably going to have a reduced reward to risk ratio.

He just simply hasn’t had one of those really big fat winners yet that you tend to depend on when you are using a trailing exit.

There’s two issues here…

One is, as he trades more, he is more and more likely to hit one of those big winners and that is really going to help him out.

Two is he could have reduced his chances of seeing such a dramatic drawdown if he had decided to risk less per trade. I know it is easy to say that in hindsight but you can use the calculator that is linked up...

In this episode of Truth About FX, Walter gives some juicy tips on how to minimize eye strain from looking at computers, laptops, and other gadgets for too long. He points out that while having a strong “dedication” towards monitoring the charts is a good sign, having a healthy body is still the best way to achieve success.

Download (Duration: 06.02 / 6.90 MB)

In This Episode:

00:52 – intense trading

02:17 – blue light

03:25 – health hack

05:18 – prescription glasses

Tweetables:

Eat well, re-hydrate, and do some eye exercise. [Click To Tweet].

Wear gaming glasses to minimize the blue light.  [Click To Tweet].

Use some softwares to help adjust your gadgets’ lighting.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. My eyes get tired after a long trading session, do you have any ways to minimize eye strain?

Walter: Yeah. First thing is it sounds like you are probably trading the lower time frames. If you are trading the lower time frames, you probably have a background in sports or martial arts or something because you are able to focus, maybe had a meditation background. That’s great!

You probably eat well, you probably exercise. All these things are going to help you if you are doing these intense trading sessions but in terms of your eyes — I’ll put a link below this podcast down in the shownotes .

You can get these gaming glasses that I use. I am not even on the computer that much. Today, I think I am going to be on the computer between 90 minutes and two-hours. That is going to be all my computer time today. The rest of the day, I will be out doing something.

I am trying to minimize that but what you would do is you would wear these gaming glasses. I do not know but have you seen these, Hugh. These gaming glasses?

Hugh: Yeah. I actually bought a pair recently, too.

Walter: Yeah, they are awesome. It cuts out the light. I mean, it is a great way to do this. I think it cuts the blue light or something. The other thing that you can do is I’ve got these software that is really a good idea if you spend a lot of time in the computer.

I’ll link up in the shownotes too here, to this podcast episode, so you can download it. I put it on my phone, my tablet, my computer. For whatever reason, I do not think it works on iPhone. I think it has to change something in the iPhone and iPhone would not let you do this.

Hugh: The thing is with the iPhone, it is already built into the system.

Walter: Is that what it is? Really?

Hugh: It is in one of the settings, yeah.

Walter: So, what this does is this software changes as the sun goes down. For example, one of the big worries about being on the computer late at night is you get too much blue light and that keeps you awake and and keeps you stimulated.

In this episode of Truth About FX, Walter talks about ways to reap profits even if you only have one successful trade in a month. He also talks about the human psychology about what holds you back from trying to take on other markets and exploring other options.

Download (Duration: 05:24 / 6.18 MB)

In This Episode:

00:49 – gambling mentality

01:57 – spiral of trying

04:12 – real focus

05:08 – downfall

Tweetables:

Get a broker who will let you trade all the other markets. [Click To Tweet].

Get really good at trading one pair then expand your horizons.  [Click To Tweet].

Remember: Accounts are not built overnight.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. This question comes from a trader and this person is asking… They basically backtested a system and they only got one trade per month. How are they going to be getting money on this trade? It is insane, basically.

Walter: Yeah, and that is a pretty common one. Let’s talk about this. There’s a couple of things that really get traders into trouble. Number one is getting into that revenge trading or gambling mentality.

The easiest way to do that is to sit down and trade the five-minute charts. It’s true. Have you done that before?

Hugh: Yeah. I’ve tried the one-minute chart and the five-minute chart. It’s crazy.

Walter: Yeah, I have too. I probably have the same experience as you. Here’s the thing. Actually, just setting this aside, I was talking to a trader — I recently went and met some traders over in the UK.

He trade the scalping system and what he does is brilliant because he says “Look, what I do is I allow myself one trade.” He trades, basically, the scalping system during the Asian session so that is a night in London — that’s a night time in London.

What he does is he goes “Look, if I get a trade that is a loser, my first scalping trade is a loser then that’s it. I shut down my platform and go to sleep, that’s it. No more.” But, if he has a winner then he’s allowed to take another one.

I think that is brilliant because if you are disciplined enough to stick to that, that is the way that you avoid getting into that spiral of trying to make it all back on the next trade and all that sort of stuff.

The reason why I think trading these system that do not offer very frequent trades is because you are avoiding that gambling mentality. When you do trade lower timeframe, it activates the different area of your brain.

I’ve got a whole webinar on this and I’ll post it in the shownotes. If you really want to see the neuroscience behind it, you can click on that video below this episode and have a look but, for right now, I just want to point out that just because you get one trade per month on this system doesn’t mean that you can’t trade thirty three different markets.

In this episode of Truth About FX, Walter digs into trading style — and whether or not he identifies himself as a long term breakout trader. He also talks about catching that elusive Kangaroo Tail and Big Shadow and should you stack the odds. You’ll also learn in this podcast when is the “right time” to risk more.

Download (Duration: 08:32 / 9.77 MB)

In This Episode:

00:45 – stack odds

02:55 – “the pinch”

04:18 – meant to capture

06:44 – highly unlikely

08:01 – simply adjusting

Tweetables:

Adjust your risks based on what you want to avoid. [Click To Tweet].

Plug your number in and work it out.  [Click To Tweet].

Each style varies with the trader.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. How is it going?

Walter: Pretty good! How are you, Hugh?

Hugh: Very good. Today’s question is — I think, it is basically two questions. The first one is, is it right to say that your style could be categorized as a long term breakout style of trading? And, when you do see a setup like Kangaroo Tail or Big Shadow and it looks pretty sweet, do you stack the odds of… For you, I guess, this person is asking, meaning like do you risk more, or maybe do you pyramid, or something like that?   

Walter: For better risk to reward. Actually, I wouldn’t say that. I would actually say like most of my trades are probably be classified as a swing.     

Hugh: Swing trading.

Walter: Yeah, looking at support and resistance as potential spot to take like a counter market move. Almost like saying the market’s been going up, it hits this resistance so I sell or,the market’s been going down, it hits some support so I buy.

It’s really more of a swing trading. I mean, it depends on the systems. If you are looking at the Big Shadow or Kangaroo Tail, you can certainly trade them as trend continuation patterns but they normally won’t have all of the characteristics that I am looking for.

Obviously, these are all posted in the book and in the shownotes for this, the Naked Forex book. And, in the shownotes for this video, I can post two books for you, the Kangaroo Tail and the Big Shadows, since these are the systems that this person is actually asking about.

You can get those books if you want. Basically, most of my trades are swing trades. Some of them would be considered trend continuation or like waiting for a retracement and then you get a signal and so. Sort of like the trend has retraced and it throws a signal and then it’s like trend on again, that kind of thing or breakout.

For example, the last keys trade is a breakout. It is just a normal breakout with confirmation and that is basically all it is. That is, essentially. I mean, I guess you can apply these naked patterns in different ways...

In this episode of Truth About FX, Walter talks about getting a good health insurance and why it is important. According to him, it is essential to keep yourself prepared — whether from shark attacks while surfing. Likewise, it is imperative to equip your trading system and yourself.

Download (Duration: 03:21 / 3.84 MB)

In This Episode:

00:43 – part of the expense

01:53 – health package

03:00 – conclusion

Tweetables:

You need to buy whatever you need to make your system work. [Click To Tweet].

Do not jump to a conclusion too early.  [Click To Tweet].

Stay with your job if you have responsibilities. [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. This is one of those trading for a living question. As an independent trader, what you do about health insurance? I know this is going to vary by country or whatever but what you do out there in Australia?

Walter: I am assuming that this is probably from someone in the States. I get private health insurance, I pay it. It is just part of the expense. It is like Canada over here where you can get covered by the government but it is smart to have private insurance because it just gives you more options.

You do not have to go when they say you need you to go or whatever. I do get private health insurance. I think it is just one of the expenses. You remember, sometimes traders get a little bit weird and they think “Why am I paying for the software? Why is this and that? Why these all expenses?”

If you were like somebody who sold ice cream, you’d have to buy the ice cream, pay the staff, rent the place where you are selling the ice cream, buy floor cleaner and pay the water bill. You know what I mean?

Fix the toilet when it was broken. All these things are just a business. As a business, you’ve got to buy your software, your computer, your internet, whatever tools you need like forex tester or whatever is part of the deal.

It is really not a lot so I consider health insurance to be a really cheap thing because, obviously, the implications here is that if you have a job and you are working for Bank of America or whatever, they would probably give you a nice health package which is fine but I would rather have my freedom, trade by myself and not have to deal with all that so, I just get my own. That is the easy answer and I know some people might think this is a funny question but it is a big deal when you are actually on your own.

This is one of the things that happen when you are on your own because you’ve got to figure out how am I going to make money for the next month or how am I going to pay for when something happens to me. You get a car accident or whatever, something terrible happens.

These are the things that you’ve got to think about, shark attack or whatever happens to you, you’ve got to be prepared.

Hugh: Working on the beach is great until you get bitten by a shark.

In this episode of Truth About FX, Walter talks about testing multiple markets or multiple timeframes at the same time in a forex tester. According to his experience, there are a number of set-backs you could get from doing this. Walter also gives a reliable and simple tip a realistic equity curve that you could use on your trades.

Download (Duration: 06:35 / 7.53 MB)

In This Episode:

00:53 – painful

02:06 – flattens out

04:18 – calculator

06:03 – spreadsheet

Tweetables:

Take up all your data and put it in a spreadsheet. [Click To Tweet].

Know your numbers, your average winner and losers.  [Click To Tweet].

Hope for the best but plan for the worse. [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. When you are doing some backtesting, do you ever test multiple markets or multiple timeframes at the same time in forex tester?

Walter: I used to do this and what I found is that you end up messing up. You miss some trades and then you go back and back space and say “I would’ve taken that” but the problem of that, of course, is now you’ve seen the future.

It’s like you are using hindsight bias in your backtesting which is awful so I just stick to one pair and now, I know it is painful, I know it takes forever. I know people do not like to do that but it really does make sense.

Otherwise, you have to advance one bar, check all the chart, advance another bar, check all the chart and that is painful too. I would just go with one and if you are trading the weekly charts or the daily charts, you are not going to get a lot of trades anyway so you can blow through those data.

Those data might take you only… Ten years worth of trades might take you only two weekends or something like that or ten hours of trading so testing in forex tester, it’s not that big of a deal.

I just break them up like that and, here’s a tip, you can take up all that data and put it in your spreadsheet, sort it by date. What that means is you’ll get an equity curve of what it would look like if you are trading that in the real world.

You’ve done all these EUR/JPY testing, GBP/AUD testing and USD/CHF testing, you put those three pairs together and sort by the entry of the trades. When you get into the trade and what you have is you’ll have these winners and losers that are popping up on your spreadsheet.

You can draw your equity curve based on the balance of the account and then you’ve got some really cool… Because you can see how trading multiple markets flattens out your drawdown and things like that.

Hugh: Okay.

Walter: That is a really cool way to see that.

Hugh: That is a great tip. While we’re around the topic, putting the data into a spreadsheet, what else could you do with the spreadsheet that maybe you couldn’t do in forex tester too?

Walter: With the spreadsheet, you can change your risk parameter. Let’s say that you are trading 1% risk on each trade so you co...

How do you trade? How do you know when a lot of volumes come in?

In this episode of Truth About FX, Walter gives insider tips on the best method to find your trade’s momentum. He also talks about market movements, indicators, and shares an important tip: look at your candles and observe their pattern.

Download (Duration: 05:32 / 6.33 MB)

In This Episode:

00:57 – lot of volumes

02:08 – momentum

04:00 – qualifiers

Tweetables:

You’ve got to trade how you believe. [Click To Tweet].

How do you trade?  [Click To Tweet].

Look for really big candles and stick to them. [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. This is another listener’s question: What do you find is the most effective method to qualify momentum, either in a breakout or trend continuation situation? Do you use price action or something else?

Walter: There’s a couple of ways to do it. I do not use indicators, obviously, but what you can do here is you can look at the candles. Actually, one of my students years ago, he get a trivia on this idea where because he was saying — he kept showing me his charts and say — “How do you trade?” and stuff like that?

He was showing me a strategy and said “This is where a lot of volumes comes in” and I’m like “What do you mean? How do you know a lot of volumes comes in? Like, this is forex. Are you falling your broker’s volumes because that is just your broker?”

It’s a totally different market, really, and things like that. What he was talking about was basically momentum. He said “You can tell momentum when you see these really big candles”. I guess it’s true.

It takes a bit to move the market, it takes a bit. It takes enough buying power to move it up and it takes enough sell to move it down so, you can tell. In fact, I saw a presentation at one of the FXstreet.com conferences which I was lucky enough to present at a couple of years ago.

He was the guy from Oanda. He was one of the co-founders of Oanda. He was showing us how it doesn’t actually take that much to move the market at any given moment. Move it up a pip or so, it’s really not like that and it’s surprising how little it takes.

Obviously, if it is a big candle, that means there’s a lot more behind it. I think the easiest way really is to see momentum in the candles. How do you do that, the question?

The answer for me is I look for really big candles. I think that you’ve got a lot of bullish momentum when the candle that you see is bullish, it is bigger than the last ten candles. The ranges are bigger and it closes right up near the top.

That would be a sign that “Look, we are going in to some bullish momentum here”. Likewise, if you had a downside or a reason to go  bearish in the market, you might see a really big bearish candle, bigger than last ten whether closed down near the low candles.

This is the thing I would be looking for now. It is a little bit more complex than that. That is a basic idea.