Truth About FX

In this episode of Truth About FX, Walter talks about the reason why winning trades take time while losing trades are faster at hitting the stop loss. According to Walter, it generally depends on your trading style and psychology. He also shares some useful points to get yourself away from over-analyzing and taking profits too early.

Download (Duration: 8:35 / 9.82 MB)

In This Episode:

00:39 – winners test patience

01:50 – rounding around

03:15 – getting blasted

05:28 – exercises to try

07:37 – trick yourself

08:00 – cognizant

Tweetables:

Why did you take the trade? [Click To Tweet].

Remind yourself that you need to stick to your rules.  [Click To Tweet].

Move to breakeven or pull the plug on a bad loser. [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 from one of your students. This person asked: why do you think winners take awhile to reach the target while losers are quicker to reach the stop loss?

This person has a win rate of about 70% on all markets but they said they tend to observe that “Winners test my patience more than losers giving me a chance to analyze before I close”.

What do you say to that?

Walter: That is a great observation. I agree. Just this week, I had two losing trades and I woke up and one of them had gone 73% on the way of my stop and so I dumped it immediately when I woke up.

I sleep during the New York market. I live in Asia and I see the Asian market or I see them open, anyway, until they close, basically. I see the London open and then I pretty much go to sleep. If I stay up until 11 0’clock where I’ll see midday, basically, in Europe.

I do not see the New York open and when I wake up, it is basically before the New York close. I miss most of New York so what happened during New York this week was it took one of my trades all the way, 73% on the way of my stop, so I dumped it.

Then the next one, it just totally stopped me out, like overnight. That is typical. When you think about it, what is probably going on here with this trader is you are probably a reversal trader.

You probably take trades where you see the market rounding around and you think it’s made a high and it’s going to start falling or it’s made a low and it’s going to keep going up. That is probably the style of your trading.

If you think about it, it makes sense because if you think the market made a top and you are selling it and you are wrong, it’s going to continue on and it keep going higher. Then, what it’s doing is it is just resting there and it is going to blow through your stop loss.

Whereas, if it is turning around and it takes a lot for a market that is going in one direction to turn around. That moment has to shift, slow down, and then turn around and accelerate in the other direction.

Usually, if you are wrong, you’ll know straight away.

In this episode of Truth About FX, Walter pulls down the curtain on the subject of switching to lower timeframes to get more trades. According to him, there are three basic reasons: science, your broker, and lifestyle. Walter also touches on “addiction mindset” and the real psychology behind the theory.

Download (Duration: 7:03 / 8.08 MB)

In This Episode:

00:58 – part of your brain

02:19 – addiction mindset

04:06 – fight your psychology

05:05 – fighting the current

06:06 – it’s a choice

Tweetables:

Enjoy life. Do not spend all your time in front of the charts. [Click To Tweet].

Don’t go upstream and fight the current.  [Click To Tweet].

Better decisions come when you’re away from the market. [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 guess this speaks to the fact that you trade longer timeframes so if you can make money on longer timeframes, why don’t you just switch to a lower timeframe, get more trades and make more money?

Walter: Great question. This is a number one question and the number one concern or problem that people say when they look at my trades. There’s a couple of things going on here.

There is, basically, three reasons why. Number one is we know from neuroscience that when you trade the lower timeframes, you are activating a different part of your brain than when you are trading the higher timeframe.

What I am talking about is when you sit in front of a computer, you take a trade and you watch every candle print, you are in the same mode that, literally, like a crack at it as in… You know what I mean? Not to be rude to anybody, crack at it myself, but that is basically what is happening.

You can look up the nucleus accumbens and trading. Google that and you’ll see. I’ll put a link on the shownotes. Basically, that is number one. Number two is if you are worried that your broker is doing funny business and slipping you… And I can tell you that I’ve done test on brokers, brokers that I know like I know the owner of the company — two brokers I’ve done test with and I thought they were a legitimate blah, blah, blah but they’ll slip you when you start winning.

If you are trading a system like I used to where you go for a profit every 3 pips — which is crazy –when they start slipping you a pip and a half, think about it. You’ve lost half of your profit.

When you start getting slipped and tagged your stop loss, tagged even though it shouldn’t been or whatever because you are trading lower timeframes, it is basically easier for your broker to mess with you.

That is just reality. Number one is I don’t want to get into that “addiction mindset”. Number two is I know that brokers, when you start making money after about thirty days, they will start slipping you.

In this episode of Truth About FX, Walter pulls down the curtain on the subject of focusing on win rates versus measuring a trade’s precise risk. According to him, it is highly important to backtest using a precise risk per trade. Otherwise, centering on win rates might shadow a good system that you actually have.

Download (Duration: 3:11 / 3.65 MB)

In This Episode:

00:50 – precise risk calculator

01:56 – adjusting your system

02:28 – concentrate

Tweetables:

You can have a really good system. [Click To Tweet].

Backtest using your system’s precise risk per trade.  [Click To Tweet].

Place your stop loss based on market action. [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 backtest, do you just concentrate on the win rate or do you actually go in and calculate the precise risk for each trade?

Walter: Wow, what a great question! I’ve actually been talking to some traders about this just this week because I’ve had some questions on this. This is a tricky thing because what you can do is — and I’ve done a blog post on this, a video, you can get that on the shownotes after this and I’ll link that up below this episode.

Basically, you can have a really good system. If you don’t have a precise risk calculator for every trade, it hides, it masks the fact that that’s a good system. I would say, in every case, you need to backtest using the precise risk per trade.

If you focus on the win rate, you are focusing on the wrong thing because, really, what we are interested in is on return of investment and return on risk capital more precisely. That is really what will encourage you to do.

I think it is a huge mistake to just haphazardly go through a backtest saying “I just want to see if this works” because you might not know if it works or not if you are using different lots.

Basically, different risk on every trade. If trade one has a risk of 1.4% and it is a winner then trade two has 2.5% risk and it is a loser, then you are multiplying your loser, almost doubling your loser in that case and is because you are not taking precise. You are not calculating precise lot sizes on every trade.

Now, this comes with a caveat. There is one situation when you don’t need to do this. This is when like, Hugh, if you are trading this system where every single trade has an 80 pips stop loss then, you don’t need really have to think about that.

You have to adjust it slightly as your equity goes up but it’s not that dramatic. I am talking about a system where you place your stop loss based on market action. You go, “I am going to put this above this ring higher, below this ring lower” or something like that so it’s going to vary a lot and your lot sizes can vary quite a bit as will your target most likely.

That is the way I trade and lot of traders I know trade in that way but I do know ...

Would you trade the same idea twice?

In this episode of Truth About FX, Walter digs into the subject of trading ideas, signals and execution. He asks an important question when deciding which road to take: Is this according to my beliefs? Have I tested this with my system? Walter also talks about an essential method of determining when you have reached your turning point.

Download (Duration: 6:04 / 6.94 MB)

In This Episode:

00:40 – trades that didn’t work out

01:42 – why you’re losing trade

02:43 – wrong approach

03:48 – too much emphasis hurts

04:34 – freight train

05:14 – a fruitful area

05:37 – fortitude

Tweetables:

Keep following your system. [Click To Tweet].

Don’t modify your systems based on recent trades you had.  [Click To Tweet].

Just take losses and just try. [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 many times will you trade the same idea? For example, if you’ve had two losers at support and resistance level, what would it take for you to trade the setup for the third time?

Walter: That is a great question, Hugh. I’ve actually, just this week — I think forty-eight hours ago — I had couple of trades that didn’t work out. One of them I got triggered on — actually, two of them I got triggered on — one of them I didn’t get triggered on. The two that I got triggered on was like blasted almost immediately, got stopped out.

Today, we have another signal and I am going to take them. I got two signals so I am going to take them most likely during the London session. This is a timely question. My thing is to concentrate. We’ve been talking a little bit about this in the private forum, the group that we have and, really, the focus should be on executing your system.

This isn’t meant to, like to demean anybody or to say you are wrong or whatever, but my belief is that when you have losers, there’s a couple of things that could be going on here.

If you are following your system to a T, and you know that it’s profitable in the long run or you believe it to be based on historical data –and you can argue what you want about historical data — but if that is what you believe, then the only reason why you have a negative or a losing trade is because of bad luck. I mean, that’s really the only reason.

This question assumes that there is something going on here that needs to be fixed. That is what I am reading between the lines. I would say,  “Definitely no”. Keep following your system.

In other words, let’s say these two signals that I take today are stopped out again and then next Tuesday — which should be a few trading days from now like three-trading days from now — I get another signal on the same pairs in the same direction, I’ll take them again.

I’ll look at it is, focusing on executing my system. I am staying through to what it is,

How do you know if something is working out the way you want it to be?

In this episode of Truth About FX, Walter digs into the enticing appeal of using automated trading robot and if you should or should not really use it. He talks about important factors that you should consider when making the decision, the problems that may arise and — if you do choose to use robots — how you should decide which one to use?

Hugh also shares his experience in using trading robots and how it turned out for him.

Download (Duration: 6:42 / 7.68 MB)

In This Episode:

00:37 – shortcuts

01:40 – crappy system

03:22 – a different point in time

04:21 – margin-called

06:10 – a discretionary trader

Tweetables:

Choose the one you can’t mess with. [Click To Tweet].

Just get it going and let it be.  [Click To Tweet].

The past is never indicative of future performances. [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! The idea of automated trading video appeals to me. Which trading robot should I use? I know that this is a question that you and I both get quite a bit, especially with the newbie traders or maybe traders who haven’t found success yet and are looking for shortcuts. What would say to that?

Walter: I really do not want to completely shift down this idea because I know there are people out there that do this successfully. But, when people say “Which trading robot should I buy?”

To me, the answer really is it’s the one that you will just load up and let it go and you won’t mess with it. You know what I mean? I know that sounds like a flipping answer or whatever but it’s true because the problem with automated trading is that, especially if you do not know the logic behind the system. Maybe you didn’t create it, you just bought it or something so it’s like a black box.

The problem with these is that we, as humans, tend to tinker with things. We’ll go in and we’ll make it so that we go “Well, the market’s changed” or, “You know, there is so much uncertainty so I’ll turn it off now” or whatever.

These things pop up and these are reasons for us to get in there and fiddle with things are really why often does not work for us. The other reason why it does not work for you is because it’s a crap system. It’s because it is crap and they’ve sold it with the 60-day guarantee or whatever.

Here is what I would say. Real simply, two systems that you should use: one, is the one that you’re not going to tinker with, that you’re just going to put on your account and let it go. You are not going to get there, turn it on and off. You are not going to adjust it or anything like that. You’ll just going to let it go.

For most of you, that is going to mean that it is a system that you know what it is so you had a program or your friend made it or something like it. You know what is it all about. That is probably true.

The other part of this is maybe you don’t know what is it a...

In this episode of Truth About FX, Walter talks about taking market signals, patterns, and the two important scenarios that you should examine when considering if you should or should not call it a day. Walter also shares a good spot in determining a “range-bound market” versus a trending market and the different candle behaviors for each one.

Hugh also shares his approach of pulling different methods into his platform.

Download (Duration: 6:00 / 6.87 MB)

In This Episode:

00:54 – gangbuster trades

01:35 – Acapulco System

02:44 – a subtle difference

04:12 – momentum-based system

05:26 – ATR exit

Tweetables:

Wait for the pullback or wait for the market to go even farther. [Click To Tweet].

If the market has been on strong trend, take the trade.  [Click To Tweet].

You can have this really tight stop loss on your trade. [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 happens if the markets has already moved the average range of the day and you just took a signal? Do you ignore it?

Walter: This is an interesting point. Basically, it depends on what the chart looks like. I am a technical trader so I do not really pay attention to news. In fact, as I was recording this, Hugh, there was some massive moves on the GBP.

So, I got a GBP/JPY trade and a GBP/NZD trade and I am thinking about a GBP/AUD trade. My GBP/NZD and GBP/JPY and I have a GBP/CAD trade, too. All my GBP trades are like going gangbusters, right?

I know there is some news that happened last night or whatever that probably feed it and everyone is talking about it but I didn’t actually know what it is. I do not even care. I haven’t logged into FXStreet.com to see what is going on or whatever.

I have no idea. Someone could’ve been assassinated or kicked out of office or… You know what I mean? Somebody took over the Bank of England. I do not know, I have no idea.

All I am saying is that I based it on the charts. To answer your question, if the market is in like a runaway trend and it’s broken through… Let’s say, the market has fallen through a really critical support level, for one of my assistant has called the “Acapulco System” which is, basically, a breakout trade.

It breaks out through a support and resistance level. If I see something like that and it’s already moved the range of the day, I might still place my order in to take a trade.

It may not necessarily get triggered today, it might be triggered tomorrow. It’s because the candles are starting to accelerate and look really big that I sort of throw the ATR out the window.

Remember that ATR, at least the way that I look at which isn’t very often but if I do look at the ATR, it is a ten-day ATR. Those small candles that were printing last week, going to the calculation of that ATR, it’s not really that important.

The last two candles, for example,

Do you ever ask yourself will the market go how far? Will it turn around and go against me? If so, what will you do when it does?

In this episode of Truth About FX, Walter delves into the area of market levels, chart patterns, and the different exit methods that might suit you depending on your beliefs. He also touches on the many sort of things that can happen against your trade and how important it is to accept that those things can also happen to you.

According to Walter, the market has a memory and that it is imperative to anticipate these events and recalculate your risks.

Download (Duration: 10:37 / 12.1 MB)

In This Episode:

00:34 – the philosophy

01:53 – a magnet

03:24 – the meat of trading

04:53 – a gift

06:58 – misleading

08:02 – a balance

09:07 – going downhill fast

10:12 – a major hit

Tweetables:

You have to assume that the market will continue onward. [Click To Tweet].

You need to have control over your profit target.  [Click To Tweet].

Just because you got stop loss, doesn’t mean you’re at max risk. [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 do you know how far the market will go? How do you know where to place your profit target?

Walter: This is really an interesting question and I’ve been discussing this with other traders because it gets into the philosophy that you hold as a trader. The way that I approach it — which is not necessarily the right way for everyone — is that I have a belief that the market has a memory and that there are places on the charts where price repeatedly reverses.

It goes to a high that it has been to before and it pulls away from that and starts turning lower. Likewise, it’ll go to a low that it remembers from sometime historically and then it’ll start trading higher. I believe that it bounces off those levels and sometimes it’ll go to a level and stop there and wait and pause and gear up for a burst through the level. That is how I trade.

Really, what I am doing as a trader is I am waiting and waiting and doing a lot of waiting ‘till the market gets to one of this levels, print a pattern, and make it forex liable pattern that I know I’ve tested and I am comfortable with. That pattern tells me whether the market is going to reverse at that level or whether it is going to be breakthrough that level.

That is really how I trade. Now, the question about targets comes in and my belief is that once the market either reverses off one of this support and resistance levels or breaks through one of this supports and resistance levels it is now attracted, it is almost like there is a magnet at the next level.

Price, naturally, will find itself attracted to that next level so my targets are pretty clear. They’ve got to be the next level or the level after that if I am really going to get really aggressive,

In this episode of Truth About FX, Walter talks about the Asian Drift, what it is, what it means to traders, and how you can look at it in a favorable way. He gives useful tips about setting boundaries and how the Asian market can actually set your day right.

Download (Duration: 03:14 / 3.71 MB)

In This Episode:

00:38 – wrong turn

01:45 – what you don’t want to take?

02:18 – in order to get in

02:34 – not so good

Tweetables:

Look at your charts and see for yourself. [Click To Tweet].

A lot of signal do not happen during Asia.  [Click To Tweet].

Let Asia to set the boundaries for the day. [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 sounds like a Vin Diesel movie but what is the “Asian Drift”?

Walter: I like that. The Asian Drift is this idea that the markets tend to move in the “wrong direction” during the Asian Session. Here is how you look at this: go to your charts and pick out any daily candle, make sure that the candle has a wick — that there is an up wick or a down wick.

What you want to do is see when the open happened — so the opening price on that candle — and the market goes in one direction, obviously during Asia, and then the rest of the day it tends to go in a completely, other different direction.

It is not always the case but is often the case. It does not mean that the low or the high of the days made during the Asia, that can still be made during Europe or New York even but it does mean that there is a little bit of a wick normally either the lower wick on a bullish candle or the upper wick on a bearish candle.

Normally, those will be formed during the Asian Session. Go ahead and look at your charts, see that for yourself. What we found, if you go to the backtesting numbers — what I’ve found, what my students have found, probably many of you have tested this and have found — is that, you do not really want to take a trade during Asia.

What you want to do is you want to let Asia to set the boundaries for the day. If you want to go long… Let’s say, you want to go long on EUR and the EUR goes up a little bit during Asia, goes down a little bit more and it comes back up right about where it started before London opens and then let’s say, it spikes down.

Well, just put your order above the high above the Asian Session and let the market tell you that it is right. Let the market push through that high that was made during Asia. Let it make a higher high in order to get in.

That is how I trade. A lot of my students trade the same way and what’s interesting is lots of students have actually looked at this data and they know that if they take, for example a four-hour candle trade in Asia, the win rate is not as good as it is on the New York candle or European candle.

That is normally the case, typically that is. A lot of signal do not happen during Asia because it’s so range-bound, it does not really move out far. To be fair,

In this episode of Truth About FX, Walter dig into the topic of stop loss and if you should — or should not — wait for it to be hit before deciding your trade’s fate. According to him, it is important to ask yourself: is there a reason for the market to turn around at this point?

Hugh also identifies his own method which relies heavily on price action and instinct.

Download (Duration: 05:10 / 5.92 MB)

In This Episode:

00:37 -should I stay or should I go?

01:02 – hands-off

02:29 – time to get out

03:12 – set and forget

04:05 – the real kicker

Tweetables:

Does it look like it’s going to turn around? [Click To Tweet].

Set and forget. [Click To Tweet].

Bump up your risk to reward ratio. [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! Do you recommend getting out of your trade before your stop is hit?

Walter: Here is the thing: if you are one of those people who finds yourself getting into a really should-I-stay-or-should-I-go sort of thing and you talk yourself out of a trade, you moved down to the lower timeframe to see if you can figure out what is going to happen. That kind of stuff is going to get you in trouble.

So, I would not recommend doing that if you are that kind of a trader. You need to set and forget. You need to hit your stop loss or your exit or your take profit, like that needs to happen.

If you are more hands-off then you can do what I do which is, typically, my stop loss is like my worst case scenario. Sort of like I am asleep at night, something happens in the markets and the market is gone like three hundred pips in other direction and it stops me out. That is really how I look at my stop loss.

I don’t like to see it hit and most of the time. If I have a losing trade, my stop loss will not be hit. I actually get out if it goes, say, seventy, seventy-five percent of the way toward my stop. I am usually thinking, okay. I’ll look at it and say, “Is there a reason for the market to turn around here?” Does it look like it is going to turn around?

If the answer is no, then, I’ll usually dump the trade. So, what that means is I am reducing my average loser and it’s not the full one point zero R to use risk management’s peak. If you do not know what R is, Van Tharp’s book talks all about R and I’m sure most of you will understand that concept. That is how I do it, I get out in most cases long before it hits my stop.

Occasionally, my stop is hit and it really bumps me out and I do not like to do that. I do manage my trades and again the question I ask when I see the market go against me is: Is the market giving me a signal that would suggest I should get into a new trade and is that new trade in the direction of my trade that I am in?”

Or, is it in the opposite direction? If there is a signal to go in the opposite direction then, obviously, it is time to get out. That is how I manage it. I would be interested to hear how you do it, Hugh.

In this episode of Truth About FX, Walter touch on the topic of trading and socialization, trading tribes, and why it is important to have a balanced and healthy life outside of trading. He delves into the advantages of finding the right persons to hang-out with and the unusual but otherwise helpful things we can get from experienced people.

Download (Duration: 05:36 / 6.41 MB)

In This Episode:

00:32 – meetup groups

01:34 – Trading Tribe

02:39 – “cool” traders

03:21 – a balanced life

04:05 – wrong group

05:22 – retired friends

Tweetables:

Trading can be a lonely existence. [Click To Tweet].

Hang-out with people outside of trading.  [Click To Tweet].

Be with people who can teach you more. [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 the best way to hang out with other traders if you don’t have traders in your local area?

Walter: That is a good one. If you go on to the internet, I don’t know if you’ve seen the Meetup Groups, Hugh. Have you seen those on the internet before?

Hugh: Yeah. Those were great.

Walter: Yeah. I think you can find a group for just about anything. I’ve actually even gone to a few of those meetup groups to give some presentations on how I trade to some of those forex traders because it’s fun to me and to other traders and things like that.

The other thing I would suggest, if you are into your psychology, you might look into the Trading Tribe. You can go to Ed Seykota’s website which we’ll link up in the shownotes to this podcast.

Basically, it is a group where you meet up with other traders and you work through your issues. You are not meant to go there and talk about trading, but what you are meant to do is go to there and figure out what are the emotional barriers in your life.

If you can purge those emotions, then the theory is your trading will get better. You will not play out these little dramas in your trading and you are, sort of like, you get them out of your system right at Trading Tribe.

That is another group and sometimes what will happen in Trading Tribe is some of the traders will go get together outside the Trading Tribe. Trading Tribe is really not meant to be chit-chat about trading. It’s really a specific routine.

There are Trading Tribes around the world. There’s probably one near you and you can go to Ed Seykota’s website and forum there. I would just say go to the meetup groups, you may go to a conference or something, but I don’t know if those things are really… I really do not go to those.

I think they are broker dominated and I guess there’s traders there, I do not know. I guess, there’s traders there because the broker is trying to sell you stuff. I don’t know, Hugh. What would you say?

Hugh: Yeah, I totally agree with you. I would also,