Truth About FX

In this episode of Truth About FX, Walter a question about the possibility of multiplying a small trading account into a million in a year. Walter explains what could be the answer to this, if it is possible or not, the dangers that might come along, and the human psychology that makes you want to try it.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP29_Trading_Strategies__Should_I_Copy_One.mp3

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In This Episode:

00:44 – math made sense

01:23 – money management magic tricks

02:15 – nucleus accumbens

02:57 – deterrent in real time

Tweetables:

The psychological aspect is the most likely deterrent for you. [Click To Tweet].

What’s the trading strategy and how will I implement it?  [Click To Tweet].

It’s usually not a good idea to 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! This is an interesting question. Somebody probably asked you: “I saw this video on youtube on risk management and it said something like: how to turn three hundred dollars into a million dollars in a year? What is the trading strategy and how will I implement this?”    

Walter: It’s a great question. It did came from a student in the forum. He, basically, was trying to figure out — the math made sense to him — and so he’s trying to figure out “Which strategy should I use to do what this guy is talking about in this video?”

The answer is probably none. Basically, what this guy was doing, he’s risking like a quarter of your account to leverage into a big run. That’s, for most traders, the drawdown that’s inevitable, is going to mean that you’re going to start questioning yourself and,at some stage, you probably are going to quit and get to that uncle point where you just don’t want to do it anymore.

When you see these sort of money management magic tricks, it’s usually not a good idea to try and fit your trading style into that. There is one exception and that would be if you have a whole host of trading systems.

When I say a host, I mean like dozens that you were trading and if each of those systems trades often enough and you have low enough risk then, essentially, what you’re doing is you’re speeding up the calendar because you’re taking so many trades.

This is really the attraction of scalping for a lot of traders. The reason why they’re so attracted to scalping is because they understand this, that they get paid per trade and so “I might as well take more trades.”

That’s sort of the distraction that scalping provides. There’s so many other problems to scalping including — if you want to google this — lookup your nucleus accumbens and see what that is.

I’ll

In this episode of Truth About FX, Walter talks about risk management and if you should risk more for a sure trade versus a trade with unknown results. He highlights that while it is usually good to take risks, it is always better to stick within the trading discipline, especially if you are new to trading.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP28_Should_I_Risk_More_on_a_Sure_Trade.mp3

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In This Episode:

00:50 – always risk the same

01:16 – not a good plan

01:43 – wrong instincts

02:21 – bad habits

Tweetables:

It gives you green light to break your rules. [Click To Tweet].

Look to the one that looks the least likely to workout.  [Click To Tweet].

It’s just easy to get into bad habits.  [Click To Tweet].

Hugh: Hi, Walter! How’s it going?

Walter: Good. How are you, Hugh?

Hugh: Pretty good. Today’s question is did you risk more on a sure winner trade than in something that you’re not so sure about?

Walter: I understand this. To be honest, I haven’t really thought about this in a long time. The first two traders I worked with, we were talking about different styles and money management. This is the one that came up and I thought it was fascinating because I always just assume that you would always risk the same.

I can understand why people do it and some really famous traders do this, as well. Most of the listeners here probably heard of George Soros. He has this idea where you really need to have courage to be a pig, as one of his students said.

You’ll go in with a lot of leverage when he’s really sure, for example, when he basically bankrupt the Bank of London. I don’t believe that’s a very good plan. I think that it just increases the chances that you are to go bust.

It also break sure out of your normal confines of discipline. If you start doing things and say this one really looks good, I’ll give it more risk, I think it gives you green light to break your rules. That’s even more dangerous, especially for new traders.

New traders, typically, will have the wrong instincts. I know I certainly did when I first started trading. This is one of the things that the turtles were taught when they’re taught by Richard Dennis and William Eckhardt.

They were taught that if they had two trades to take and they can only take one because they were essentially almost maxed out, that they should look to the one that look the least likely to workout for them.

In other words, the one that they didn’t like the most that was the one to take. What they’re doing is leveraging the same instinct that doesn’t really work when you’re a new trader. I would say, most definitely, don’t do that. It’s just easy to get into bad habits if you do.

Hugh: That’s a great point. I know it works for some traders but I think it’s a very, very small percentage of people who can actually trade from that framework. You’re right,

In this episode of Truth About FX, Walter talks about how to keep track of different international markets. He suggests a website that can help you know which market is open at a specific time wherever you are. It is also important to remember that while it is good to know this, it is also essential to know where the main market is open.

Hugh also shares a good website that you can use to keep your self updated on this.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP27_Best_Way_to_Track_Openings.mp3

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In This Episode:

00:43 – main market is open

01:16 – least liquid time

01:55 – do the math

02:12 – bit old school

Tweetables:

Know where the main market is open. [Click To Tweet].

There are indicators that you can use.  [Click To Tweet].

What’s the best way to track the markets?  [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 always get confused which market is currently open — is it New York?; is it London? — especially when I’m travelling. What’s the best way that you know of to keep track of this?

Walter: The important thing is — I’ll link this up in the shownotes underneath this episode — you want to know where the main market is open. The main markets are, of course, London in Europe, and of course, Frankfurt, but London is the main one.

Then there’s New York in the Americas and then when you’re talking about Asia, really, it’s Tokyo. I know people talk about Sydney or Auckland or whatever but those are not forex centers.

In Asia, it really is, the first one is Tokyo. We’ve also got Hong Kong and Singapore but Singapore comes online later. There’s this gap between the end of New York and the beginning of Asia. That’s the interbank market. That’s the least liquid time of the day and Tokyo, doesn’t start trading ‘till nine a.m.

Here’s what I suggest that you do. If you that nine thirty a.m. is New York open, nine a.m is Tokyo open and eight o’clock is London open. What you want to do, really, is you can — anywhere in the world — you can go to website called timeanddate.com I’ll put that link below the shownote.

You just click in. Let’s say you’re in Sri Lanka and you want to know what time London opens, just go to timeanddate.com and find out what time it is right now in London. You know London opens at eight a.m. so you can do the math from there.

I rely on timeanddate.com and I know there are indicators that you can put on your charts and those sort of things. I suppose they do adjust with when the clocks get moved back in the States, in the UK, and things like that.

In this episode of Truth About FX, Walter talks about taking trading courses and mapping out your trading system based on how others do.

Walter highlights how important it is to know and acknowledge your beliefs and psychological barriers that blocks you from becoming a successful trader and why, while it is good to get ideas from others, you should never forget to find your self and trade the way you are comfortable with.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP26_Should_I_Copy_Other_Systems.mp3

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In This Episode:

00:35 – what could have gone wrong?

01:31 – sounds funny

02:06 – discover what your blocks are

04:03 – not easy but possible

05:23 – go through the buffet

Tweetables:

Somethings are actually psychological barriers towards financial success. [Click To Tweet].

Overwrite negative thoughts with better ones.  [Click To Tweet].

Is it necessary to follow someone else to learn how to 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! This is a common question that we get. I signed up — or a student will say “I signed up” — for trading educational service, course, whatever. They have a good reputation, they did their homework on the service but they didn’t make any money. What could have gone wrong?

Walter: This is going to sound funny and it’s true there are some scams out there. I think the hay day, the old wild west days in forex are gone, they’re behind us when we all had this fake trading robots. You remember all those, right?

Hugh: Yeah.

Walter: Those trading robots were insane, news are hell and those things don’t generally work. Here’s the deal, there’s one of two things going on: one, you sign up for a scam and it’s a scam.

They’re not making any money, they’re faking the results and usually you can figure that out by looking at the reviews. If the reviews are poor, then maybe that’s a pretty good clue that you shouldn’t really deal with these guys and move on to something else.

More likely, if they’re honest, it’s more likely that it’s actually you. I know it sounds funny but we all have thoughts about money, we have thoughts about wealth. Sometimes these things are actually psychological barriers between us and financial success.

Now, I know it sounds a little bit weird and we’re getting bombarded by messages all day long. A lot of these things are in our subconscious, they’re not accessible, they’re very difficult to dig out of.

This is what I’ll suggest that you do. If you’re having trouble and other people seem to be making money or it seems like it’s a legitimate service, I would definitely look into trying to discover what some of your blocks are.

In this episode of Truth About FX, Walter asked which broker is the best forex trader and if he could recommend one. Walter talks about the importance of finding a broker that will allow you to set your own precise lot sizes and how important it is that you know what your powers are and that you are allowed to use them for your advantage.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP25_Who_is_the_Best_Forex_Broker.mp3

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In This Episode:

00:54 – being independent

01:39 – calculate your risk

02:09 – lucky or unlucky?

03:16 – not in the same boat

04:37 – do your homework

Tweetables:

Know and understand the power given to you. [Click To Tweet].

Find a broker that will allow you to set your lot sizes.  [Click To Tweet].

Don’t give all of your trading capital.  [Click To Tweet].

Hugh: Alright, Walter. This is a question that I’m sure both of us get a lot. Which broker is the best forex broker?

Walter: Here’s the thing guys, Hugh and I, we could if we wanted to make a whole lot of money. It’s true, I mean, you know it’s true. If in Hugh’s website, Hugh says “This is my broker, you should sign up” and that broker would actually pay Hugh for like every trade that you make if you open up an account with that broker.

There’s a lot of money to be made there but I like being independent. There’s certainly some brokers that I think are better than others. I don’t think that it’s important for me to necessarily recommend one.

What I do think is important though is that you understand the power for you, if you are able to set your lot sizes. If you have a broker who enables you to set your lot sizes, the power that is available to you as a trader is stunning.

In fact, I’ll post a video in the shownotes for this episode so you can see what I’m talking about. Basically, if you think about it, it makes sense. Here’s what happens when you take a trade, there’s a couple of things that can happen.

Let’s say, you’re risking two percent on your system. You see this trade and you want to take it but you calculate your risk–and you’ve got a smaller account, sad to say — so, you have to decide “Alright, what am I going to do here? Am I going to take three lots on this trade and risk one point one percent” Or, “if I take four lots on the trade, I’m going to risk two point four percent.”

What do I do here? Do I risk the three lots which is less than my target two percent or I risk four lots which is more than my two percent? The issue here is that you’re going to get lucky or unlucky. See, you’re going to have some winning trades that have smaller position size than what you want and some losing trade that have larger size than you want.

That messes with your system because it doesn’t give you the true result that you should be getting.

In this episode of Truth About FX, Walter talks about trading on the go, the best application to use, and whether you should or should not really be trading on your phone. He shares that while it is sometimes good to be able to see the charts almost all the time, it can also cause some serious trade management problems too. It all depends on your trading style and how easily you can get too attached to your phone.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP24_What_s_the_Best_Phone_App_for_Trading.mp3

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In This Episode:

00:30 – don’t do it

01:14 – a little skittish

01:57 – key hurdle

03:00 – charts on the phone

Tweetables:

The way around it is to set your stop loss to breakeven. [Click To Tweet].

It feels good but in the long run you’ll see the disadvantage.  [Click To Tweet].

Your risk of ruin can skyrocket.  [Click To Tweet].

Hugh: Hi, Walter. What’s your favorite app for trading on your phone?

Walter: Some people are probably going to think that this is funny but I think don’t do it. Don’t trade on your phone. I know it’s tempting and I was one of the first guys when these  smart phones came out, at least in Australia, probably not and they probably already have it in decade in Japan, in Korea, and the US, and things like that.

What I did was, I had my trading platform on there, I have the charts on there, I had all these apps on there so that I would get alerts and it was a nightmare. The reason why is because I find myself not paying attention to managing the trades according to my rules.

Instead, what I was doing is I was bending and breaking the rules because I see the market go. I could always see where the market was and it’s almost like I changed from being a higher timeframe trader to a lower timeframe trader.

It made me a little skittish. I notice that I would do things like go out on a dinner with my wife and instead of paying attention to her and enjoying the evening, I’d be stuck to my phone.

I believe if you’re like me, if you’re a swing trader, if you’re a trader who trades intermediate to long term charts — in other words, you’re not flat at the end of the day and you still hold positions overnight — if you’re that style of trader, I think that generally speaking, having trading really accessible is not a good idea.

Now, if you’re on a holiday or if you have a trade where you feel like you’ve got to move to breakeven ‘cause to me, the most important part of the trade is when you get to move to break even. That’s the key piece, the key hurdle for me to overcome as trader.

When can I move as a trader to break even? So, what I do is I use a tool called Alertfx. You can look it up online, Alertfx, I believe it is. We’ll link that up to the show notes.

That’s a great thing to use because you can draw a line on the chart.

In this episode of Truth About FX, Walter talks about the disadvantages and dangers of taking profits too early, the importance of arriving at a breakeven, and why you should always keep your trading psychology in check before making these decisions.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP23_Should_I_Take_Profits_Early.mp3

Download (Duration: 04:16/ 4.90 MB)

In This Episode:

00:35 – tempting to do

01:14 – tricky part

02:14 – a big mistake

01:13 – numbers against you

Tweetables:

The way around it is to set your stop loss to breakeven. [Click To Tweet].

It feels good but in the long run you’ll see the disadvantage.  [Click To Tweet].

Your risk of ruin can skyrocket.  [Click To Tweet].

Hugh: Hi, Walter. Today’s question is do you ever close out a winning trade early just to offset a losing trade? So, you take a guaranteed winner so just that your PNL is positive.

Walter: This is really a tempting thing to do. It’s probably more common if you’re new to trading but I believe it to be a really big mistake.

Here’s why: if you keep taking early profits, what you’re doing is you’re whittling your way at your reward/risk ratio. Now, your reward/risk ratio and your win rate work hand in hand to give you your expectancy which is how much money do you expect to make with your system.

Most traders understand that. If you run through the formula, you’ll know what your expectancy is given your supposed win rate and your supposed reward/risk ratio if you’ve done any sort of backtesting or have an idea what to expect.

Here’s where the tricky part comes in. If you actually do this and start taking profit early then — let’s say that you have a system where your reward/risk ratio is let’s say, 2. 2.0 for every dollar you risk — you’re making two dollars on average.

What happens is you take profit early and that starts the fall down — maybe it’s down to 1.85 then it gets down to 1.75. This is simply because you’ve seen too many trades go in your direction, not hit your profit target, and then they come back  and either stop you out or hit your break and stop. You get really frustrated and you feel like you should take profit while it’s there for you.

The problem with this is — and most traders don’t realize this — your risk of ruin can skyrocket. In other words, the chances of you running into a horrible drawdown to the point where you throw into the tower and say “that’s it, I quit.” That goes way up if you start doing this with your trade.

What I suggest traders do is to simply don’t. Don’t do this. It’s a big mistake, really. The way around it is to set your stop loss to breakeven. Some people will say “I know you know how I trade, Hugh. I like to move to breakeven generally, quickly”. I know some traders don’t like that.

I look at those trades where it comes back and hit my stop loss even if it went within a few pips on my target.

In this episode of Truth About FX, Walter talks about cutting losses on trades, controlling and managing trades that are small enough to handle, and whether you should continue to hold on to trades that favors you but are difficult for you to control or not.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP22_When_should_I_Let_Go.mp3

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In This Episode:

00:36 – set and forget or manage it?

02:04 – not so decisive

02:40 – what can occasionally happen?

Tweetables:

Most traders have a difficult time watching a trade. [Click To Tweet].

It’s up to you decide which choice you’re going to take.  [Click To Tweet].

Use a trailing exit if you’re willing to give back your profit. [Click To Tweet].

Hugh: Hey, Walter. Here is a question that a lot of people ask. Should I cut my losses on trades that aren’t working out or should I just let them run to the target, on my stop loss level? A.K.A. should I make it set and forget or should I actually manage it?

Walter: This is so tough. Again, like most things in trading, this is going to depend on you. Here’s the thing, if you’re the kind of person that has found yourself — like staying up at night and thinking about a trade and logging in trading station — either your trading position has got too much risk or you kick yourself because you get out of trade. If it keeps going in your favor and that sounds really difficult for you to handle, then you probably should just go set and forget. That’s probably what you should do.   

If however, you, and I know it seems like you have more control when you’re actually managing it, what I’ll do is if the market goes about seventy percent against me and hasn’t quite hit my stop but has gone seventy, seventy-five percent toward my stop, I usually will start thinking about how am I going to get out of this trade.

I know that it’s not for everyone. Sometimes I don’t do that. In fact, recently I had two losers — I think in a row — and both of them were full losses which is rare. I wouldn’t expect it for the rest of the year. Those are probably the only two trades that I would have where I had full loss because I generally get out early when it goes against me.

It’s easier to do so if you’re trading weekly or daily chart trades. It’s so much easier to reduce your average loser in this manner but if you are the kind of person that is not so decisive, then it’s probably not going to be for you. It’s better for you to stick to really small position and just let it go.

What you’ll find is, occasionally, it’ll go against you so far and it’ll actually turn around and come back. I remember, one time I was on holiday in New Zealand, I got on the plane and I thought “Well, I’m going to be stopped out. By the time I get back home, get off the plane, I’ll see that I’ve been stopped out.”

It actually turned around and it just held on a really, really like to a fine thread.

In this episode of Truth About FX, Walter discusses about the pros and cons of using two targets alone versus using one target and a trailing stop to maximize profits on the last position. He also points out that it is important to use the method that you are comfortable with and is acceptable within your best interests.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP21_Two_Targets_vs._One_Target_and_Trailing_Stop.mp3

Download (Duration: 04:32/ 5.20 MB)

In This Episode:

00:34 – personal preference

01:33 – give back that profit

02:48 – split it up

04:04 – too difficult

Tweetables:

Most traders have a difficult time watching a trade. [Click To Tweet].

It’s up to you decide which choice you’re going to take.  [Click To Tweet].

Use a trailing exit if you’re willing to give back your profit. [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: Alright, Walter, this is a pretty common question: should I use two targets or one target and a trailing stop to maximize my profits on the last position?

Walter: This is a tough one and it’s going to come down to personal preference. Basically, what will happen is if you use a trailing exit and it’s a pretty good trailing exit and it fits the market and so forth, you will occasionally get this really nice, big, fat winners but you’re also going to get a lot of trades that are like sub par. In fact, the first target that you’ll use might make more profit than your trailing exit under remaining lots on the trade.

This can be, psychologically, really difficult to stick with over the long haul. In general, using two targets — although it may not be the most profitable way of trading. I know it sounds funny but, in other words, if you were to just use a trailing exit and not have a profit target, in most cases that trailing exit is pretty good. You’re going to make more money than in any other way.

The problem is most traders have a difficult time watching a trade. Give them so much profit and then pull back then finally their exit, trailing exit pops you out of the trade. That’s really difficult to give back that profit.

What I suggest is that you either pick two targets as this trader refers to. You have two stationary targets, one is a little bit further — maybe it’s less likely to be hit than the first one — but it allows you to make that extra profit in case when it is hit with maybe two out of ten times or something like that on your winners.

The trailing exit does the same thing, the only difference is you were effectively using the extreme volatility that we see in the markets in your favor. What that means is, in a trade where you get an average of a hundred pips,

In this episode of Truth About FX, Walter talks about expectations and how this affect your trading, and when should you — or shouldn’t — rely on current events to anticipate the future.

http://media.blubrry.com/truth_about_fx/content.blubrry.com/truth_about_fx/TAFX_-_EP20_How_does_the_News_Affect_your_Trading.mp3

Download (Duration: 03:16/ 3.74 MB)

In This Episode:

00:31 – news related

01:38 – pure chart

02:01 – expectations

Tweetables:

It’s all about expectations. [Click To Tweet].

It’s how those numbers line up with what people think that’s going to happen.  [Click To Tweet].

We only take a trade if there’s a surprise in the number. [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: Alright, Walter, this is a question that I had when I first started and I’m sure other people have also. This relates to news so when good news comes out, good things are supposed to happen to currency pair. For example, if bad news came out in Japan but the USD/JPY went down, what the heck? Why does that happen?

Walter: It’s interesting, isn’t it? Where sometimes you will get news and you think it should affect the currency one way but it doesn’t and it goes in other way. What people will often say is it’s really about the expectations.

When we trade the Non-farm payroll, for example, what we do is we only take a trade if there’s a surprise in the number. We know what the economist think are going to be the numbers of the Non-farm payroll. If it’s an enough of the gap between the real numbers when they release and the expected average numbers that they polled economist say, then we have a trade.

It’s the same thing. Now, I will hand on heart tell you right now I am not a fundamental trader, I don’t go for fundamentals, I don’t try and interpret fundamentals. I just go with the chart. I’m at as close to a pure chart as it is you’ll ever find.

However, I do know that when these things happen, what the fundamental analyst often point to is “well, yeah it was bad news for the JPY” but, it wasn’t as bad as they thought it would be.

These are the sort of things… like, recently a couple months ago or month ago, they didn’t cut rates on the AUD. Their expectations were that they were probably to keep continuing to cut rates even if it didn’t do last time around, maybe they’re going to do it in the next couple of months but they left the line out. They didn’t raise rates, they didn’t cut rates.

They did nothing but they left out this line that they usually say. The Reserve Bank of Australia usually says “…and we will continue to monitor the situation and keep on top of the cash rate or blah, blah, blah”.

They just left that line out so everyone thought “oh,