Truth About FX

In this episode, Walter digs into the subject of exploiting market points and increasing positions. He gives some insider info on how you can build and create your own approach and define your trend. Walter also talks about having the right mindset. Who are you as trader?

Download (Duration: 05:27 / 6.24 MB)

In This Episode:

00:32 – exploited

02:40 – scary and big

04:42 – in and out trader

Tweetables:

You just have to know who you are. [Click To Tweet].

Just know that you are going to have some losers.  [Click To Tweet].

Find someone who knows nothing about trading to test your ideas with. [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 an interesting question. These persons wrote in and said “I’ve been doing some backtesting and I’m trend trading” and they want to know if you’ve ever exploited the points in the market, or points in the move when the market breathes in.

I guess they were asking, do you ever take that advantage on a pull back to pyramid in and increase your position? They would love to get your perspective on this.  

Walter: Yeah, this idea of the market breathing in and breathing out. Actually, the first system I ever did like when I started making money for the first time, I was basically doing that and so there’s a couple of elements to it.

I’ll be happy to post a video in the shownotes here so you can see my perspective on this and maybe you can build on that and create your own approach but, basically, what I like to do is first of all you need to define your trend.

The easiest way to do that is to find someone who knows nothing about trading or get a little kid and just ask them, put them on a line chart and say “Is the line going mostly up or is the line going mostly down?” or, “Is the line going up and down?”

If they say the line is going mostly up or the line is mostly down on the line chart then, you know you are in a trend. That takes you out of the equation, you didn’t have to worry about finding the trend. As traders, we got sucked in there, really complex ways of doing that.

That is good, right? So, you’ve got the trend then what you needed to do is break it down into a structure and, typically, what you will see — and I learned this from Martin Pring.

If you want a really good book, there is one called “Pring on Price Patterns” which I found really fascinating. I like the way Martin Pring approaches things. What I learned was that when the market is moving in a trend, always see the big candle or trend candles and then this little retracement candles against the trend. Or, if it is a really strong trend, those candles are just going to stay flat, sort of a flat line and they get really tiny and then they’ll give some more big trend candles.

You can time your entries based on pullbacks. What I learned from Pring was that the last exhaustive candle,

In this episode of Truth About FX, Walter opens up the “secret” of his daily trading routine and the reason why he doesn’t trade on certain days. According to him, your routine should be in sync with your lifestyle and trading system.

Would you rather stay awake all night and lose sleep for a trade or sleep early and take the trade early morning the next day?

Download (Duration: 06:04 / 6.96 MB)

In This Episode:

00:31 – trading day

02:23 – starts to kick in

04:57 – good signal

05:50 – no fun at all

Tweetables:

When do you put your order in? [Click To Tweet].

Take the trade early if it was early.  [Click To Tweet].

There are certain worst days to take trades. [Click To Tweet].

Hugh: Hi, Walter. This is a question that I am sure you get all the time. What’s your daily routine look like, especially on a trading day?

Walter: This is a good question. I used to live in the States where a lot of actions happen during the London market. It was in the middle of the night and I really do not like that. I moved to Australia where the London markets starts in. It depends in the time of the year but usually starts around 5 pm, 4 pm, 6 pm so it’s not really that difficult to be awake when the London market starts.

The reason why the London market is so important to me is because I trade a lot of weekly and daily chart trades. I trade typically Tuesday, Wednesday, Thursdays. I do not like to get into trading on Mondays and Fridays for a whole bunch of reasons.

In the shownotes of this episode, I can post a little video explaining my reasons behind that. You can go up and test this ideas for yourself and see if that seems to hold true. Basically, I would wake up in the morning, my daily candles will either have closed or they will be closing very soon.

Then, I’ll know based on that once that the daily candle close, I’ll know. Do I have any daily setup that’ll make daily charts that I want to take? If I do, then what will happen is, I will — I’ll send out a video right so that the traders, you’ll know — my form will say this  one’s I’m looking at because I wanted to know that this is the trade that I want to take during the London market but I will not take during Asia.

Again, like I said, it is in the shownotes, you can see the video. I’ll show you why I do not take trades during Asia and why I do not take trades on Mondays and Fridays. Basically, we found that the those were the worst days to take trades.

All day long, I know what I want to take later on the day. All day during the Asian session, I know that, for example, I want to buy the EUR. If I want to buy the EUR, I’ll place my order when the Asian session is over and as the London market starts to kick in, right after the Germany starts to fire up.

That is how I like to place my order in there and then if it gets triggered over the New York or London session, then I’m sittin down. I’m sweet, I’m stoked . If it doesn’t gets triggered then, the next day when I wake up in the morning and I’ll see the daily candle close, I reassess and say “Okay,

In this episode of Truth About FX, Walter talks about why you should — or should not — change your rules based on strategy. Is the market or are you just evolving as a trader? Walter advices against adding too many filters and over-complicating your systems.

You will also learn here a unique method called the “Acapulco Trade” — and, no, you are not actually going to trade in Acapulco — and how this can help you in finding breakouts.

Download (Duration: 05:09 / 5.89 MB)

In This Episode:

00:40 – assumptions

02:00 – complexity

03:19 – temptation

04:51 – jumbled junk

Tweetables:

Avoid adding too many filters and over complicating your systems. [Click To Tweet].

Break it out and do a different test.  [Click To Tweet].

Ask yourself: If I do this, how would my results change? [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 a question I had earlier on and I am sure a lot of people have also right now: how long should I test one strategy before changing or refining the rules?

Walter: What a great question. This is what I would say. First of all, there is an assumption that you are going to change the rules and I would say why. If you have more moving parts, like if you’ve got a MACD moving average, the Stochastics and you’ve got these different indicators and settings like that then maybe, over time, you might have to change them.

If you’ve got a really simple system, maybe you do not have to. Probably, what’s going on here is it’s not really that the market is changing and that you need to change the rules. It is probably you are evolving and you are changing as a trader.

What that means is you’ve got new beliefs that are starting to crop up given your experience trading the markets which is absolutely fine. You want those to manifest in your trading system.

That is probably the more likely thing. In my estimation, what’s going on here is that you are thinking “Okay, I’ve noticed that the market often does this and how do I incorporate that into my system?”

I would say, at a minimum, if you are trading a system successfully — I mean profitably, consistently and you are comfortable with it — I wouldn’t change anything for, at least one year at the very least.

I would ask myself this question, if I am thinking about changing it, ask yourself this question “is it that you say that you are changing it because the market has changed?” If that is the reason and you really believe that, then maybe your system is too complex.

You have too many filters, too many rules, too much going on and that is being reflected in the result because it does not seem to really capture like it once did. That is one thing. The other thing is what if you are saying “I want to change the rules of this system or modify them because I believe this is what often happens in the market”.

In this episode of Truth About FX, Walter talks about trade retouches and breakouts, and moving into different timeframes depending on your goals. Do you want to see a breakout on the daily? Do you feel like you’re missing out on your current trades?

You will also learn here a unique method called the “Acapulco Trade” — and, no, you are not actually going to trade in Acapulco — and how this can help you in finding breakouts.

Download (Duration: 03:22 / 3.85 MB)

In This Episode:

00:38 – false breakouts

02:12 – drop down

02:56 – Acapulco trade

Tweetables:

Move to a lower timeframe. [Click To Tweet].

See if the market breaks through the zones and stay.  [Click To Tweet].

Confirm what the market is still using as a spot in the chart. [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. Why do you wait for retouches and breakouts? Aren’t you worried that you are going to miss the breakout or something?

Walter: You know what, that is a really good question and the answer is yes, sometimes you will but what you’ll also miss are those false breakouts. If it is a false breakout, if they extend beyond the zone and then all of a sudden pulls back the next candle, that is like a false breakout.

If you add those two candles together, you might get like a really long tail, kangaroo tail or something like that which is, of course, a reversal signal on that support and resistance zone. What I prefer to see is for the market to break through the zones, stay beyond the zone for several candles, to close beyond the zones for several candles, and then come back down and touch it.

Does not matter if it is a bullish breakout or a bearish breakout, I would want to see the market blow through that zone which has repeatedly held the market, right? We are saying “Well, it’s not holding it now, it’s breaking through” and then to confirm that the market is still using that as an important spot in the chart.      

It needs to come back and push of and then go all the way. I understand why people get upset and feel they are missing out because of what happens to the gold’s value. There is actually an easier way to do it.

If you are concerned about that, my suggestion is just move to a lower timeframe because, typically, like let’s say you see a breakout on the daily, you might see a retouch almost immediately on the one-hour.

What that means is you might not get that daily retouch for a long time but you might get that one-hour retouch within 24 hours or something like that. That is what I would say to do that if you really feel like you are missing out, maybe drop down to a lower timeframe.

Of course, you’re comfortable with it if you test it and all that but that is one way to get around that. The other one is there is a trade called the “Acapulco Trade”.

Is the market bend strong enough to scream at you to take it?

In this episode of Truth About FX, Walter gives some insider information on the best and easiest way to see support and resistance zones. He describes three important keys on catching support and resistance zones and choosing which candle to use.

Download (Duration: 05:47 / 6.63 MB)

In This Episode:

01:01 – trouble

03:14 – guided principle

04:24 – double bottoms

05:02 – x-ray vision

Tweetables:

Look for those sweet spots where you see repeated support and resistance. [Click To Tweet].

The best thing to do is to keep it simple.  [Click To Tweet].

Take the trade if the chart gives a good pattern. [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, man?

Walter: Pretty good. How are you today, Hugh?

Hugh: Pretty good. Alright, today’s question is: What is the best way to draw support and resistance levels on your chart?

Walter: This is something that comes up. The two things that come up with Naked Trading is —  because there’s, basically, isn’t any other things to worry — how you draw support and resistance zones and which candle should I be using?

Should I use the GMT midnight close candles or the five New York time? Really, that’s it. The main question that comes up, because you are not fine tuning indicators, but here is what I would suggest if you are having trouble.

There’s a couple of things to keep in mind. Keep your mind to these three things: one is they should really jump out at you. When you are looking to find support and resistance levels on the chart, they should jump out at least, super obvious.

The easiest way I know how to see these zones in an obvious way is to move up to a higher timeframe. If you are trading the one-hour chart, move up to the four-hour chart and look for those places where you see repeated support and resistance.

In the shownotes of this episode, I’ll link up a video for you so you can see how I view it and maybe that’ll give you a way for you to fine tune your own way by identifying these. The easiest thing to do is think where are the very best spot on the chart where the market has repeatedly found support and resistance?

Now, obviously, sometimes you are going to see spot where the market has found like the top and it hit the top and that it’ll pull away so it’ll find support and resistance. And, likewise, sometimes you’ll find a bottom where the market puts you to bottom and you only found support.

Those are also going to qualify zones because market will get back there and it often does. But, usually, 99% of the time, what you are looking for are support and resistance over and over again. If you look at the higher timeframe chart, that’ll help.

Number two is use line the chart so look for those little bends ...

In this episode, Walter leans on the topic about the downsides of using backtesting and some of the common mistakes of using this method. He also gives some useful insider tips when backtesting to get the best and accurate data possible.

But, does having this number of computer screens actually contribute a tremendous amount to the success of your trades? Or should the focus be more on your trading psychology and execution?

Download (Duration: 08:16 / 9.46 MB)

In This Episode:

00:41 – limited range

01:32 – limited slice

03:10 – two big mistakes

05:20 – ten years of data

07:34 – snapback system

Tweetables:

Never assume that your system is going to work in all markets. [Click To Tweet].

Test on different types of markets and see what happens.  [Click To Tweet].

Get the breadth of different types of market under your belt. [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. A lot of educators talk about the benefits of backtesting but what are the downsides?

Walter: Wow, what a great question! One of the things I would say about backtesting is if you are not really careful, you can make a couple of mistakes. The first mistake would be that you would backtest a very limited range.

Let’s say for example, you backtested the EUR on the daily chart between say 2002-2004 or something like that or even 2002-2003, what you might come away with is a system that works really, really good in a trending market but does not work so well in a choppy sideways, swing up, swing down market.

That is one thing that I would guard against. The other thing would be, in other words, what you would want to do is you want to make sure that you test in different types of markets.

You want to make sure that you know based on your backtesting “Okay, if there’s a trending market, my system is not going to do so well” or, “If there is a sideways market, wow, my system is going to do really well” or whatever. You have to know that.

If you only take a limited slice of historical charts to use in your backtesting to verify your system and to build your confidence, then you are going to be in trouble later on when the market does not give you exactly what you backtested.

The other mistake would be to assume that your system that you backtested is going to work in all markets. The real point here is if I am backtesting the CAD/JPY and if I’ve got a lot of dials and switches and things that I can fine tune and indicators are famous for this.

Let’s say, I am doing a CAD/JPY system and I adjust the MACD, I adjust the moving average and maybe I’ve got like a Stochastic or Momentum or something and I just fine tuned all those that fits my systems really, really well, I cannot assume then that is going to work if I go ahead and trade the GBP or the EUR/JPY something like that.

In this episode, Walter gives light to a common and, yet, one of the most important trading-related questions: how many monitors should you have? According to him, you should get as much as you see fit that can accommodate your needs.

But, does having this number of computer screens actually contribute a tremendous amount to the success of your trades? Or should the focus be more on your trading psychology and execution?

Download (Duration: 04:15 / 4.86 MB)

In This Episode:

00:44 – just long enough

01:41 – the real focus

02:20 – playing with fire

03:35 – a lot of screens

Tweetables:

The real focus should be on what that does to you neurologically. [Click To Tweet].

Do something that can improve your trades.  [Click To Tweet].

Trading is more than just having a number of screens. [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 know people kick out about this question so I was just wondering, how many trading monitors should I have and how big should they be?

Walter: This reminds me of the question which was — I think it was April — and someone asked Abraham Lincoln and he said, how long should a man’s leg be? And he said “Long enough to reach the ground”.

That reminds me of like … I have no idea. I mean, this is a personal thing and what kind of a woman should I marry or whatever, I do not know. I do not know what to tell you. I would say it’s like when you meet friends and “I like this guy and I want to hang out with him” or “I like this girl”.

Here is the thing, if you cannot trade on one screen then maybe you need two. If two does not work, then maybe you need three. I really do not know what to say. I would say that there are more important issues than the number of screens.

One is if you’ve got a lot of screens and you feel like you need a lot of screens, the hint that I am getting there is you are probably trading the lower timeframes. You are making snap decisions, you need a lot of stuff in front of you.

If that is the case, you are probably going to be like the real focus should be on what that does to you neurologically, what is happening to your brain when you start trading these lower timeframes. That is the real issue here and I would urge you to look up the nucleus accumbens.

Google nucleus accumbens — I’ll give a link down here. There are a couple of studies and resources in the shownotes for this podcast. Basically, your nucleus accumbens lights up when you start trading these lower timeframes.

That is the same area of your brain that lights up on you when you do a line of cocaine. It’s a very distinct thing. I mean, if you feel like you need to have seven screens or whatever, you are playing with fire, basically.

I am not saying you cannot do it.

In this episode of Truth ABout FX, Walter talks about trading strategies and if he ever has one. He touches on the subject on the case of “Big Shadows”, retracements and candle formations.

According to him, it’s not the issue of having a “favorite” strategy but rather whether your strategy fits on the markets that you’re trading.

Download (Duration: 02:23 / 2.73 MB)

In This Episode:

00:40 – special case

01:06 – viable strategy

01:57 – big shadow

Tweetables:

Do more backtesting rather than searching for the right system. [Click To Tweet].

Try and find a system that you are comfortable with.  [Click To Tweet].

There are always weak spots for every system. [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 is your all time favorite trading strategy?

Walter: Good day, Hugh. That is a tough one. If someone said “Look, you just do this one thing” I would say, I would probably go with the “Big Shadow” which is a special case of the engulfing candles.

The listeners, if you are familiar with engulfing candles, the Big Shadow is basically like a special case of that. A couple of things have to be setting up perfect for that. I think and I’ve seen it done where you could just trade Big Shadows like you are always on the market, and you trade the Big Shadow, sell to a Big shadow long and so forth.

You just keep trading like that, that is a viable strategy in of itself. If you have to take one, that’s probably what I would go with. It’s really simple. I like to use them with support and resistance but I know some people don’t do that.

Some people use them with the trends. They wait for the market to start to show what they think to be a trend then they wait for retracement which is followed by a big shadow entry signals.

There’s a lot of things you could do with it. I would say it’s a simple two candle formation, I think it’s fairly powerful so I’d go with that. Is there something that you like in terms of trading, that something that you would just say “Look, if I traded one..” or are you happy to have different systems?

Hugh: At this point, I don’t think I could really call one favorite strategy.

Walter: Yeah, fair enough.

Hugh: If people would want to find out about how to trade Big Shadow, where do they go?

Walter: I’ll post a video underneath. That is a great question. I’ll post a video under the shownotes here so you can see the basic setup and you can just click on that and see how it goes and test it for yourself.

Hugh: Cool!Thanks a lot.

Walter: See you.

Shownotes:  

In this episode of Truth About FX, Walter drops off some useful tips for “rookie” traders on market approach, patterns, and finding the perfect system that speaks of who you are as a trader, your beliefs and lifestyle.

Walter also shares an interesting read that may shock you.

In this episode of Truth About FX, Walter talks about what he thinks forex would be like in the near future in terms of technology, government regulations, and trading education. He shares some of the reasons why forex traders would leave US, for example, to trade in Australia or Singapore and how business regulations in a country can affect that decision. Walter also taps on the subject of transparency and the reasons why top traders show — or why some wouldn’t show — their trades to online audience.

Hugh also reminisce his high school soccer coaches and how this story reminded him of an important trading principle.

Download (Duration: 06:49 / 7.81 MB)

In This Episode:

00:47 – cracking the code

02:15 – all or none

03:40 – choppy

05:35 – a lesson

06:18 – rookie traders

Tweetables:

Do more backtesting rather than searching for the right system. [Click To Tweet].

Try and find a system that you are comfortable with.  [Click To Tweet].

There are always weak spots for every system. [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! If you could go back and give yourself one piece of advice when you first started trading, what would that be?

Walter: I would probably say spend more time doing backtesting rather than searching for the right system. Or, I would say do not be so concerned about cracking the code of the market or trying to be right a hundred percent of the time.

So, what I did — when I first started full time in trading — what I did was I just read a bunch of books. I moved to a different country and I just concentrated on the markets. I ordered a bunch of book through all the library known.

I got into all these Gann books and all these different things and I end up settling on in price action. I learned a lot of different really cool approaches to the market. In the beginning, I was selling the Gan and I thought that if I could crack the code, you would know exactly where it’s going to go, this and that.

Later on, I settled on the more universal patterns that you see in different markets like the Bulkowski book, I’ll link those up in the shownotes for this episode. Those Bulkowski books are really cool because they highlight, for me, that there are repeatable patterns in the markets.

That set me off in the price action trading path. I would say the best piece of advice would be instead of trying to find the right system and jumping into the markets, why aren’t you try and find a system that you are com...

In this episode of Truth About FX, Walter bring up the topic about what might become of forex trading in the future in terms of technology, government regulations, and education transparency. He takes a quick backtrack on what forex trading was like back in 2000s when people were selling systems and how brokers made money out of it instead of actually interacting with the markets.

Hugh also shares a memory back when he was in high school and how two different soccer coaches helped him shape his strategy and trading psychology.

In this episode of Truth About FX, Walter talks about what he thinks forex would be like in the near future in terms of technology, government regulations, and trading education. He shares some of the reasons why forex traders would leave US, for example, to trade in Australia or Singapore and how business regulations in a country can affect that decision. Walter also taps on the subject of transparency and the reasons why top traders show — or why some wouldn’t show — their trades to online audience.

Hugh also reminisce his high school soccer coaches and how this story reminded him of an important trading principle.

Download (Duration: 15:00 / 17.1 MB)

In This Episode:

00:42 – future FX

02:07 – selfish point of view

03:02 – out of the box

05:21 – a little dodgy

08:39 – facebook account

11:57 – “so what?”

13:33 – mechanical mind

Tweetables:

People don’t necessarily see the market in the same way. [Click To Tweet].

Just because you are a good trader doesn’t mean you can explain everything.  [Click To Tweet].

Ask yourself: will it fit with my view? [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: What’s up, Walter? How is it going there?

Walter: Pretty good, Hugh. How about you? What is going on in your life?

Hugh: Pretty good! I am doing this from Estonia right now so it is early in the morning but it’s all good.

Walter: Brilliant! Really early?

Hugh: Yeah, really early. So today’s question is what kind of things you would like to see in the future FX be it software, regulations, education? What is on your mind right now?

Walter: That is an interesting question because I think what we’ve noticed, like you’ve been around currency trading for the long time and I spent watching the markets at least in 2000. And so, you probably noticed like a lot of changes in terms of the way that different governments approach regulations and the different governing bodies or semi-regulatory bodies that have taken over currency trading.

In the Wild West days up until 2005, or from 2000-2005, it was like everyone was a broker and it didn’t take much to open up a brokerage and there a lot of dodgy stuff going on — there still is I think.

Then the next phase is the regulators come in and they clean up. At least in the US, they’ve gone a little bit too far,