Truth About FX

In this episode of Truth About FX, Walter digs into every trader’s biggest barrier, looking for perfect results. Walter talks about risk parameters and how testing your system in forex tester can really show some difference in terms of drawdowns.

He also answers:

* Is it really okay to have more than one system?

* What should you really expect out of a system?

* Is there really a “perfect system?”

Walter answers this and more in this episode of Truth About FX.

Download (Duration: 04:53 / 5.59 MB)

In This Episode:

00:32 – stellar results

01:29 – moral of the story

02:36 – scrap it

03:16 – hallmarks of a good trader

05:09 – goes and explodes

06:25 – giant box

Tweetables:

Do your numbers [Click To Tweet].

You can have multiple systems  [Click To Tweet].

Everybody has a drawdown [Click To Tweet].

Hugh: Hi, Walter. Somebody wrote in and they said they have trouble sticking to and believing in a system.

They say:

“I tend to drop a system as soon as they start showing less than stellar results and start looking for the next Holy Grail trading system.”

What should they do?

Walter: Yeah. That’s a tough one, isn’t it? Obviously, I’ve been there. I don’t know if you’ve been there, Hugh, but I’ve certainly been. It’s pretty common thing for traders.

Hugh: Oh, yeah. Totally.

Walter: There’s a couple of things I think that can help, with respect to Holy Grail thinking.

The reason I say that because it’s unclear what the issue is with this trader. It could be the risk parameters. Once you find the system and you run through it in Forex Tester and you get your numbers — numbers, meaning your average winner, average loser, and the win rate — you can work out what kind of a drawdown you’re likely to have.

It could be that because this trader is risking so much that he or she is up against these major drawdowns that are inevitable because of the math behind the system and yet they’re so discouraging that the trader just says “Ah, I quit. Let me find something better. This stinks.” It could be that.

The moral of the story there is do your numbers, do your back testing, get your average win rate or your average winner size, your average loser size and then your win rate. Plug that into fxjake.com/risk/ and then the risk calculator and then say, “Look, I don’t want to have an X drawdown.”

Let’s say you say, “I don’t want to have a 20% drawdown.” You plug your numbers in and you can find out how much you should risk so that you avoid that 20% drawdown. As long as your average winner and your average loser size stays the same — which is basically another way of saying your reward to risk ratio. As long as that stays the same and your win rate stays the same or close to what you were looking at with your backtesting, then it will be highly unlikely that you’d hit that drawdown level.

That’s one thing to do but beyond that… One...

In this episode of Truth About FX, Walter digs into finding the right strategy based on your account size and maximizing your profits. He unravels Ralph Vince’s principle and the best way to use this depending on your rules and goals.

And, what is this critical piece that every trader should keep in mind when using this principle?

Download (Duration: 04:53 / 5.59 MB)

In This Episode:

00:51 – maximize your account

01:16 – horrendous drawdowns

02:33 – realistic goal

03:49 – what’s going to cost you to fail?

Tweetables:

Stick with your strategy [Click To Tweet].

Build up confidence by backtesting  [Click To Tweet].

Understand what you believe [Click To Tweet].

Hugh: Hi, Walter. Somebody wrote in and asked: How do I design a suitable trading plan for a particular account size?

Walter: This is interesting. I think there’s a subtext here which is “I really have a small account and I want to make it grow as fast as I can. How do I find a strategy?”

Do you know what I mean?

I think that’s kind of the underlying thing here. I can understand that but here’s the thing. If you want to maximize your account, then you’re going to have to trade something along the lines of Optimal F which we all know is Ralph Vince’s thing.

Optimal F Defined

Basically, here’s how it works and people don’t think of this but the higher the win rate of your strategy… So, the Optimal F is the percentage of your account that you should risk on every trade if you want to grow your accounts to as much as possible.

That’s what Optimal F is.

The problem is it leads to horrendous drawdowns. What people don’t know is actually the higher your win rate, the more it’s going, the higher the number of the Optimal F.

If you have an 80% win rate system, Optimal F might be like risking 35% of your account on any given trade.

Whereas, if you have 20% win rate, Optimal F might be risking 9% on any given trade. I don’t know, I’m just playing numbers out of my rear but that’s basically what happens with Optimal F.

What does that mean? If you have a high win rate system and you’re risking a lot per trade, that means your drawdown is going to be a lot.

The paradoxical thing about Optimal F is that the higher you risk per trade, because you have a higher win rates, the higher the win rate you have, the more deeper your drawdowns are.

Isn’t that crazy? That’s because they know that you’re going to eventually get out of it more quickly but that’s kind of the stock answer.

Use Optimal F before you grow your account as quickly as possible. The problem is anyone who’s taken an account down 90% so they’re left with 8 or 9% of the original bounds knows that it’s hard to keep trading after that happens.  

Hugh: Oh, yeah.

Walter: It’s really easy to go, “Ah, I blew it.” With Optimal F, you have to keep powering on. This is what I would say about trading your account size for a particular strategy. Think about what is a realistic goal.

What is something that you think would make sense for you over time? Is it 30% a year? 50% a year,

In this episode of Truth About FX, Walter talks about one of the biggest walls in trading: how to get consistent profits. Walter recommends building confidence by backtesting different strategies. And the most important thing you should probably ask yourself: “Why am I changing my strategy?” According to him, following your rules is more important than following someone else’s strategy.

Download (Duration: 05:44 / 6.57 MB)

In This Episode:

00:36 – sound of noise

01:18 – backtesting rules

03:05 – surfing event

05:04 – trader’s belief

Tweetables:

Stick with your strategy [Click To Tweet].

Build up confidence by backtesting  [Click To Tweet].

Understand what you believe [Click To Tweet].

Hugh: Hi, Walter. This is a question we’ve got from a listener. His biggest problem is consistent profits.

He thinks that it is his trading Psychology, where he jumps in and out of trades the slightest sign of market noise.

What would you recommend for that?  

Walter: This is lack of confidence. This trader probably has not tested. My guess is that the trader has not tested this strategy or strategies so that he knows or she knows like, “Okay, the average winner is 2.4R and the average win rate is 52%.”

Once you know those things, you’re more inclined to let it play out. You’re probably, you’ve lost your confidence. You think that when the trades go bad, you need to get out and that’s not necessarily the case.

What really needs to happen is you need to focus on what you should do. What you should do is exactly what you did when you did your backtesting. That’s the other thing.

People can still backtest but not follow the backtesting rules when they go live. That’s what I would do. I would’ve encourage more backtesting for this trader so that he or she can work through this confidence thing.

You can get 700 trades under your belt and when you look at those win rate and the stats and all that. When all that lines up, you can look and go, “Wow, if I’ve been trading this for the last three years, I would’ve made x amount of money.”

That’s a real confidence booster. You’re more likely to stick with your strategy and focus on executing your strategy rather than worrying about any individual trade. Let’s face it, what any individual trade does doesn’t matter.

What matters is that as a whole, you’re able to follow the rules that you did during your backtesting phase and you will get probably, most likely very similar results. That’s the way to approach this.

Build up the confidence with backtesting, sit down and ask yourself, write it out. When you make changes to your trades, write it out and say, “Why am I changing this trade one out? Why am I making this decision? Why am I doing that? Is it because it’s my rules? Is it because I’ve got a hunch? Is it because my psyche told me to?”

What are you doing here? There’s something really weird going on. That’s what I would do. That will also help for you to see it from a different perspective when you write it down.

You’ll be like, “Okay, wait a minute. Hang on, what am I doing here?

In this episode of Truth About FX, Walter talks about probably one of the biggest myths in trading: that you’re going to “perfect” your trading once you quit your job.

Walter shares his personal experience on this and his take on whether or not this would actually help you step up your game. According to him, choosing the right broker is critical… But, aside from this, do you know what is the most important point to remember? You’ll fnd out in this episode of Truth About FX…

Download (Duration: 05:05 / 5.82 MB)

In This Episode:

00:17 – misconception

01:18 – tiny account

02:14 – cushion of money

03:14 – bump up

04:13 – trades in your pocket

Tweetables:

Choosing the right broker is critical [Click To Tweet].

Build your confidence up  [Click To Tweet].

Add more 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. Where do you find the time to manage your trades when you have a full time job?

Walter: This is a great question and I think there’s a little bit of a misconception because I thought the same thing when I was working. I thought, “Well, if I’m able to get out of my job then I will have all of my focus on my trading. My trading will get so much better. I can trade the H1 chart or the H4 chart” — or whatever that I find difficult doing while I’m working and it was actually the opposite was true.

My trading stepped back when I focused on it. I think the reason why is because when you’re trading the D1 charts — obviously, if you’re trading and working, the easiest way to do it is to trade the D1 and W1 charts.

If you’re thinking, “Oh no, my account’s too small. I can’t have 375 pips stop losses,” then you need to move to a broker — and we’ll put the brokers in the show notes for this episode.

There are brokers out there that allow you to trade nano lots, micro lots — or whatever they call them, these little, tiny lots — so that it doesn’t really matter if you’re risking 379 pips or you’re risking 37 pips. You can still risk the same amount even if you have a really tiny account.

That’s critical. Choosing the right broker is critical. Once you’ve done that, you can do the D1 charts. You can sit down for 15 minutes a day whether it’s in your morning or in your evening and you can use that time to make your trading decisions.

That means putting in your entry prices and your stop losses so that your orders are setup to go. Whether that means moving to break even or even if your using a trailing stop every day, you can go ahead and adjust that stop, assuming the market is going in your favor.

All of that stuff can be done in 15 minutes a day, trading the D1 charts. Even if your watching 25 different D1 charts, that’s really easy to do.  I would suggest that you switch to the D1 charts and the W1 of course.

In this second part of The London Conference Podcast, Walter and Hugh break down Raul’s presentation and how he got his dream trading job. You will also learn about “The Professor” and how his very simple psychology technique and algorithm helped him get into working for this ginormous hedge fund.

Another talented presenter is Alex Upton who’s trading techniques are still being used today by Walter himself. You will also hear how Reima made his transition into becoming a full time trader and why this changed his life.

Hugh also unravels the “big surprise” of this event. More of these in this episode of Truth About FX.

Download (Duration: 16:36 / 19.0 MB)

In This Episode:

01:06 – cool techniques

03:29 – behind the scene look

05:43 – mad runner

07:13 – the power of Psychology

09:48 – freedom

11:05 – see the world

13:00 – spontaneous applause

15:10 – watching the flames

Tweetables:

Share what you learn [Click To Tweet].

People want to trade for different reasons  [Click To Tweet].

Trading is a constant learning process [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.

Walter: Welcome back. It’s Walter here and you’re going to listen to the Truth About FX Podcast Episode 135. This Part Two of the two-part series where we talked about the Truth About FX London Conference.

You’re going to hear about Raul and how Raul went out and got the job that he really wanted as a Bank Trader — and he still is a bank trader to this day. You will hear about Adam. I like to call Adam “The Professor”, smartest guy in the room. He shares two things and you’ll hear about those two things that he presented at the conference.

You’ll hear all about Alex. Alex is incredibly talented presenter and he presented some really cool techniques that I’m actually even using to this day. Truth be told so, Alex had a great presentation and you’ll hear about that.

You’ll hear all about Reima who’s made the transition from part time to full time trader and why this has completely changed his life. He talks about the strategies that he traded and that he trades and then he tested. All of that in this episode.

You’ll also hear from Hugh about the surprise of the event. The number one surprise of the event that shocked me — and to be honest, I think it shocked you as well. You’ll hear all about that. It was well-deserved and it’s an awesome, awesome thing to see.

All of these and more in this episode. Episode 135 of the Truth About FX Podcast.       

Walter: … And then, with Day 2, we had Adam who is our “Resident Professo”r to perform and he’s awesome. He almost like gave us two talks, that’s how I saw it.

Hugh: Yeah, exactly.

Walter: He had this really cool Psychology technique. For those of you who didn’t know Adam,

In this special episode of Truth About FX, Walter talks about the London Conference, its presenters, and the topics they discussed during the event. Hugh shares his experience as well as a presenter and attendee. They dig into interesting issues and concepts such as trading psychology and the different perspective each presenter shared during the conference.

Download (Duration: 15:43 / 18.0 MB)

In This Episode:

00:44 – great energy

02:13 – Psychology

04:24 – ten speakers

05:25 – go-getter

07:55 – refine ideas

09:33 – technical to fundamental

11:59 – great tip

13:36 – chess champion

14:53 – two-headed

Tweetables:

Start focusing in on the Psychology [Click To Tweet].

If you want a dream, go and get it  [Click To Tweet].

Learn to trust yourself [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: Great, Hugh. Just came back from the conference and it was great to meet you and all the other traders in the area.

Hugh: Yeah. Finally, for the first time we’ve actually met.

Walter: Yeah, that was good fun. It was actually really good fun. What were your thoughts? What do you think about the conference overall?

Hugh: I thought it was great. I thought that there was such a great energy in the room. There’s obviously a lot of good education but I think just the fact that you’ve got to hang out with traders and quite a few successful traders at that, I think that was the biggest benefit of being there.

Walter: Yeah. It was interesting, actually. I was reading the comments on the feedback. One person said, “It was really great to go to a conference where somebody wasn’t saying, ‘This was my last chance. I lost my house, my wife, my dog and I’ve got to make this work.’”

It was interesting. I haven’t thought of it that way but that was one of the things that came through loud and clear from the attendees and from the surveys that we did after. It’s how people were really impressed with the level of traders that were there and how encouraging they were which is interesting because to me, that said that there’s a lot of discouraging trader groups.

I get that. I’ve noticed that a lot of free forums out there, they’ve sort of devolved into this really nasty name-calling thing.

Hugh: Yeah.

Walter: In the end, it’s always the same like the guy comes in and he says, “Hey, this is a great system. Check it out.” And everyone says, “That’s cool. Let me try it.” “Wow, that’s amazing!” And then in the end, they’re almost like “Oh, you don’t make any money. You’re an idiot” and stuff like that.

Hugh: Exactly.

Walter: It was funny how they always do. Anyway, it was really cool to have a group of people who were looking out for each other and helping each other. It was interesting to me how Psychology came up so...

In this episode of Truth About FX, Walter sheds light on the things that traders should keep their eyes on when dealing with brokers. He shares some notes and resources about offshore brokers — including the dodgy ones — and some key insights about leverage and red flags.

Download (Duration: 07:16 / 8.31 MB)

In This Episode:

00:52 – pitfalls and hurt

01:39 – red flags

03:22 – best antidote

04:18 – blowing smoke

06:01 – microsecond gap

Tweetables:

Is the broker regulated? [Click To Tweet].

Never give the broker everything.  [Click To Tweet].

Choose your country [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. Somebody wrote in, I guess his name is Steve, and he says, “You guys are excellent. I just heard of my answer to the question that I had several months ago.” He just realized the answer on his own.

He was impressed with us and himself. He says, “It proves I’m on the right track and also that your teaching is sinking in”. Alright, thanks, Steve. We really appreciate that.

He also has a question though. He asks, he spent a lot of times on the pitfalls and hurt too as a trader. What are the most common broker red flags that we should be avoiding and before you state the obvious, I’m forced to go to an offshore broker. He says he lives in a nanny-state where, “We’re not considered adult enough to make our own decisions.” What do you think about that?

Walter: Okay. In the shownotes, Steve, we can link up — thanks for your comments, by the way. That’s great. I’m glad to hear that. I would go to the shownotes for this episode, Steve, and click on the link

In this episode of Truth About FX, Walter digs into building your trading consistency by focusing on your execution. According to him, one of the biggest bumps most traders come across with is having the wrong mindset.

Download (Duration: 02:24 / 2.76 MB)

In This Episode:

00:27 – one word

01:05 – execution

01:54 – a long way

Tweetables:

Focus more on execution [Click To Tweet].

Don’t stick with negativity  [Click To Tweet].

Journal your trades [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. Somebody wrote in and they just have one word for you: consistency. So, what do you think is the best way to build consistency?

Walter: The best way to build consistency is to focus in on whether or not you’ve done the right thing with your trading system. What happens too often is people look at, “Well, it’s a loser so it’s a bad trade because this happened.”

I don’t want you to focus on that. I want you to focus on how well are you executing your system. If you can do that, you can find consistency. Also, if you can reduce the risk per trade if you’re trading live or demo or whatever, that’s also going to help you because you’re going to focus more on the execution.

It doesn’t matter like if you’re risking .25% per trade, you’re going to probably hold on trade if it has a trailing exit and not be tempted to get out. If you’re risking 3% per trade, maybe you’re going to be tempted to get out early before your trailing exit says it’s time to get out.

These are the sorts of things that I think a lot of traders do is they gets stuck with the wrong thinking. They think that because it was a losing trade, it was a bad thing and that they needed to change something because they had a losing trade.

I want you to focus on one thing when you write, like get a journal. Write down your trades. Write down how well you thought that you executed the trade. If you can do that consistently, consistently focus in on how well did I stick to my system and not whether it’s a winner, not whether it’s a loser, not any of that stuff.

“How well did I stick to my system?” Then, you’re going to probably find that it’s going to go a long way toward finding more consistency with your trading.  

Hugh: Cool. That’s awesome advice. Thanks, Walter.

Walter: Thanks.

Are you under capitalized or time-poor, but want to succeed in trading?

In this episode of Truth About FX, Walter reveals tricks for traders who don’t have much risk capital or have a hard time juggling work and trading. Perhaps you are a student but want to get into trading.

According to Walter, there’s a way. You will also learn how leaving everything behind can offer a valuable perspective.

Download (Duration: 06:16 / 7.17 MB)

In This Episode:

00:32 – a college student

01:39 – total disaster

02:29 – eat potatoes

04:07 – fancy

05:06 – good spot

Tweetables:

Try changing up your exit [Click To Tweet].

Invest whatever you save  [Click To Tweet].

Re-assess where you’re at [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 trader wrote in and this person says, “I’m under capitalized. I have no strategy and I’m on my last years as a college student.” Meaning, I guess he’ll have to get a job and he won’t have time to necessarily learn trading. So, what should they do?

Walter: This person is on a great — and I mean brilliant — spot right now because imagine… I actually did this and I think I’ve mentioned it. I actually took a year’s “sabbatical” where I left everything, sold everything. Left my girlfriend, left my business, sold everything and I moved to Australia.

I just basically learned trading for a year. I’ve got all these books and all these sort of stuff. I’ve got these books from the interLibrary loan in Australia. They all knew me at the library.

They knew me quite well because I would come in there and order these books from the other side of Australia because they have all these weird trading books that no one wanted and a lot of libraries didn’t keep them but I was able to get all these books.

The library was so small, it was like an out house. If you’ll walk into this library, you’d laugh thinking it was like a toilet but it was a real library, just didn’t have so many books. I would go in there and get these stocks of like 13, 14 books a hit and just pour over them.

My friend actually got me a job trading someone else’s money which was a total disaster but I’m glad I’ve got the experience because I’d learned that trading someone else’s money is a totally different thing than trading your own money.

Also, the guy was a little bit of a scammer. He wants us to turn the accounts. He said, “Look, it doesn’t matter if you guys don’t make money in the accounts. Just keep them about and break even and take a lot of trades.”

He was really upset that I didn’t trade because that was right about that time they started figuring out that I could make it work on the higher time frames. He would get really upset at me because we’ve got paid on the number of trades we took.

We’ve got a very small percentage on the profits we made. Both of their money was made on the number of trad...

In this episode of Truth About FX, Walter digs into probably one of the biggest mistake even professional traders make. Are mistakes made because of worrying about entering in the right direction or the inherent human need to always make the right decisions? Walter shares some sharp points on proper execution and avoid placing your trades in flames.

Download (Duration: 05:09 / 5.90 MB)

In This Episode:

00:31 – right direction

01:11 – horrible death

03:12 – basic framework

Tweetables:

You don’t have to be right [Click To Tweet].

Reassess your thoughts  [Click To Tweet].

Take advantage of when you are right [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. Somebody wrote in and they asked about entering a trade. They said they’re having trouble entering in the right direction. What do you have to say about that?

Walter: To me — and this is going to sound as a smart-ass answer — but I actually think that it is not the real issue here. I think the real issue is wanting to be right. Know that you can make a whole lot of money in the markets and people have done it literally for decades by being wrong more often than being right.

I would’ve kind of reassess that, for one thing. Now, there certainly are trading systems that enable you to be right more often than wrong and you can do that. The problem with those trading systems however is that you really have to be sharp in the execution side of things.

If you’re not very sharp on the execution side of things, then you will die a horrible death and you’re account will go up in flames. Here’s the thing, there’s a couple of ways to do it. This is what I would say.

Couple of ways to approach it. One is work on your beliefs about being right. You don’t have to be right more often than not. You just have to make a lot of money when you’re right, that’s number one.

Number two is it is possible to trade for a high win rate system. But, typically those are like the ones that have an inverse risk/reward so you might be risking $2 to make a $1.50 or maybe a $1 to make 80 cents or something like that.

What that means is if there’s any sort of a flop bop in your execution or if your psychology is a little bit off and you can easily get into a nasty drawdown because you’re not really making that much when you do win, so I would encourage you to reassess your thoughts about being right all the time.

Here’s one way to do it. You can flip a coin — I’ve been encouraging traders to do this for years but I actually heard this. We heard this at the Conference. I think Goncalo mentioned it. He said, “Flip a coin and take some trades and see if you can work your way out of them and make money.”

I’ve basically said a similar thing where I said, “Look, setup your risk/reward high like 4 to 1. Risk a $100 to make $400 and flip a coin in your entries and see if you can take 80, 90, 100 trades and see if that makes money for you.