Truth About FX

In this episode of Truth About FX, Walter digs into trading systems and how important it is to know your personality first and cognitive biases before you go “systems shopping”, especially when you’re just starting out. Should you stick to one system or experiment on different ones? Hugh opens another perspective in scalping… And when do you know you need to try something else?

Walter also shares David Franklin’s techniques and how his setups helped him build his core system.

Download (Duration: 06:03 / 6.94 MB)

In This Episode:

00:34 – just one

02:18 – does not fit

04:00 – adjust it

05:15 – eye-popping

Tweetables:

Ride that trend [Click To Tweet].

Choose your broker wisely  [Click To Tweet].

Be aware of your emotions [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 I first learn to trade, should I stick to just one system or should I find  multiple system at the same time?

Walter: I’m a big fan of trying to just get one thing down. You can always add more systems later but here’s the problem, if you’re trying to trade five systems at once or even three. Let’s say, you’ve got three systems and you really like them and you like to trade them.

The problem with that is that if you’re beginning as a trader, you’re just starting out, you’re less likely to stick with all of them. You’re probably going to rotate them in and out and you’re probably going to get frustrated with one or two of them. You’ll never really going to be an expert.

So, my approach is, decide what makes sense to you. Go with the best system you can come up with. Become an expert at that and then later on once you’re really bored with that system you can have more. That’s what I would say. I would just do that.

Try and work really hard at getting good at that and you can always add more markets. So let’s say, you’re trading a system on the EUR/USD and it goes really well. Well then, try and add the Pound and the Swissie and the Aussie. Add a bunch of other currency pairs on there and see if you can multiply your opportunities that way.

And then later on after you’ve been trading that system for two or three years, then maybe it’s time to look at adding a new one. In the background, you can still be testing your other systems, your potential systems of the future to add to your portfolio.

But really in the beginning, I think, I strongly believe, you should to  start to really kind of hone in for one thing. Otherwise, it’s just too easy to throw things away because the systems are too cheap.

But, if you’ll invest a lot in a system, it’s going to be more difficult for you to throw it away. So I would definitely try and stick to one system then slowly add more markets and then from there, you can add more systems. That’s what I would do.  

Hugh: I see, that makes a lot of sense. What happens, if let’s say that somebody finds a system they thi...

In this episode of Truth About FX, Walter digs into the scalper trader, techniques…And whether this is actually good for you, psychologically? What is the number one thing that you should keep in check when using this and how do you know based on your biases.

Download (Duration: 03:29 / 4.00 MB)

In This Episode:

00:41 – quick profit

02:02 – affects your brain

03:02 – calm in the storm

Tweetables:

Ride that trend [Click To Tweet].

Choose your broker wisely  [Click To Tweet].

Be aware of your emotions [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. In forex trading, the word “scalping” is used a lot amongst currency traders. What does it mean to scalp trades?  

Walter: Well, everyone’s going to have a definition but, in essence, scalping is essentially where you are looking to take a quick profit. That usually means that the trade doesn’t last long, that you’re not looking for too many pips. You’re looking for maybe a few pips.

A scalper might be a trader who takes a trade and gets in and out in less than two minutes. Or, some scalpers though will do that but they will also ride the trend because it’s easier to scalp when you have a really clear direction.

The market is clearly going into a direction so you ride that trend, you take some quick scalp. But, you also might leave it open and allow that trade to keep going with the trailing exit or something like that so that you do have an opportunity to make even more than you expect by having that option as  well. Some traders will do that as well.

The reason I mentioned that is because that trade may stay open for some time. Now, we have a couple of traders in our forum at Naked Forex Now, they’re offering some quick scalping type trades.

Jorge has one that he does for the New York open and then we’ve got David — and David is really a good scalper. He’s scalps the London open. So, that might be something to look at.

I think there’s a lot of things that have to go right for you to become a good scalper because of the way that it affects your brain. We’ve talked a lot about that in another episode. You can go back to listen to that, how scalping affects your brain, but also the other part of it is the broker side of it.

Forex brokers got a bad wrap but there are brokers out there who are scalper-friendly and those are the brokers that have a really tight spreads. They’re true ECNs. That means that you’re basically paying commission on your trades.

You pay a set commissions that the spread is almost negligible for these brokers so that will enable you to get in and out of a trade with a couple of pips. You really have to choose your broker carefully if you do decide to scalp.

You also have to really be aware of your emotions and what’s happening to you when you scalp because, as I mentioned in the other episode, this really affects the way you think. If you’re that kind of person who’s very impulsive,

In this episode of Truth About FX, Walter probes into trading positions and scaling these into different targets. Should you go for close targets or choose the further ones? According to Walter, it really boils down to the targets you’re willing to take and the stops you want to make. He also gives some great advice on “wiggle rooms” and trailing exits.

Download (Duration: 04:28 / 5.11 MB)

In This Episode:

00:36 – weird

02:04 – bigger position

03:08 – too tight

04:07 – split it up

Tweetables:

Splitting it up is the way [Click To Tweet].

Should I go for further targets?  [Click To Tweet].

Have a wider stop in the beginning [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 that I saw recently that I thought was interesting. This person is asking, “Should I place more positions with a small lot size or a few positions with a big lot size?”

Walter: That’s a weird question because I’m not really sure what this person is trying to get. I don’t know if the question is, “Should I scale out of my position?” You know, like in gradiance. Perhaps, have like six positions and kind of scale out at different targets.

Hugh: Yeah, I think that’s kind of what they’re asking.

Walter: Okay, cool. The other way to read that is to think, “Well should I go for further targets or really close targets like scalping or something?”…I’ll just read it the way you did.

It’s going to depend basically on “really, you should task this”, but it’s really going to depend basically on your approach. If the hardest thing for you to endure is having been in a trade and then getting out of the trade and watching that trade still go in your expected direction.

Like, if that’s a really difficult thing for you to digest then you’re probably going to want to have multiple ways of getting out of your trades. That’s just so that you can feel like you’re right, really.

It’s not necessarily to make more money. It’s like logically enables you to keep trading  your system. That’s the way I see it. That would be more of the former which is placing more positions with smaller lots.

The other way to do it is where some people might only have, let’s say, one or two different ways of getting out of trades. You might have like a target and a trailing exit but, in that case, maybe you have two bigger positions.

If you have, let’s say, you have three targets. I do this sometimes where I have a close target, a further target, which may or may not be hit and then assuming I don’t get stopped out. Assuming I don’t get stopped out I have three, I have a close target — a further target — and then like a really just, “Wow, this trade kept going from the amazing, I’ve got this other target”. So that’s one way to do it.

The other way to do it is to go the same sort of thing but you might have a trail in th...

In this episode of Truth About FX, Walter digs into automated forex strategies. According to him, there is no exact answer to the question “until when?” Instead, he dives deep into your trading strategy, signals, drawdowns, and historcal data. Walter also shares an interesting story about a friend and some of the most useful lessons you might learn from him.

All this and more in this episode of Truth About FX…

Download (Duration: 05:24 / 6.19 MB)

In This Episode:

00:25 – how quick?

01:33 – game type system

03:40 – crazy system

04:47 – more palatable

Tweetables:

You have to be wary [Click To Tweet].

It depends on the strategy  [Click To Tweet].

It will go through drawdowns [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 quickly do automated forex trading strategies lose their edge?

Walter: Boy, that’s a great question. I don’t know. I mean, it depends on the strategy. It’s like saying, “How soon before when I start trading I’m going to hit a drawdown?” Well, depends on what your system is.

For example, if you have a system that has a really high win rate so you’re trading one of those robots that has like 97% win rate. Typically, what those will do is that you’ll just wake up one day and you’re broke. You know what I mean?

Hugh: Yeah.

Walter: Whereas, if you’re trading a system that has like a 51% win rate, that’s more likely to be an extended drawdown because that’s kind of closer to what I call “real system”. So, it’s just kind of depends.

Let’s say you have a 50% win rate, you might be trading some sort of trend trading system and so it needs a trend to lock into and then it will add more positions and take advantage of that trendy move.

It doesn’t even matter if it’s the H1 chart or the M5 chart. If it’s a trend trading system, it will go through drawdowns and then occasionally it will just stack on a lot of winners and move the equity curve up.

But, if it’s like a martingale or some kind of gaming, it’s almost like a game type system where it has a really high win rate. Typically, what you’ll see is you’ll see brilliant statistics. You’ll be really impressed on those signal services.

You can go to those signal services. We can link up some of those to the show notes here. Those signal services you’ll find like typically, the ones that are the highly ranked ones.

They’re usually gaming the system by doing some sort of Martingale. Or, the other thing they do is they have a high win rate system but they keep pulling money out of the account when they have winners.  

So, what does it does, it artificially inflates their percentage returns. You’ve noticed that too. You know what I mean? They’ll have like a $100 account on the signal service.

How do you know if a trade is a winner?… Well, you don’t.

In this episode of Truth About FX, Walter talks about support and resistance lines and how to tell if the market has reached the level. What signals should you use when turning that alarm on and when should you use them?

Download (Duration: 03:44 / 4.27 MB)

In This Episode:

00:28 – broken or not?

01:16 – break and go

02:12 – double top

03:17 – quick and dirty

Tweetables:

What are the rules? [Click To Tweet].

Wait for the market.  [Click To Tweet].

You don’t know for sure [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 can someone determine if a support or resistance line has been broken or not?

Walter: Well, obviously, you don’t know for sure but these are the rules that I will use and I can post a video in the show notes. I’m actually doing the webinar tomorrow but I will record it and I’ll post it in the show notes for everyone listening to this episode.

So, look, that’s like saying, “How do you know if your trade is going be a winner?” The answer is we don’t know. But this is what I will look at. I will look at if the market reaches a support and resistance level.

Let’s say that the market is going up and it reaches resistance. If it’s going up and hits resistance and it stays there, in other words, each candle… Let’s say we’re looking at the daily charts. The daily candles keep pushing into that resistance level. The longer that happens, the more likely it is to break and go higher. The longer the market sits there and keeps pushing it, the more likely it’s going higher.

Now, contrast that with the market that’s going up. It’s going up, it hits that resistance level, it moves away from it immediately. And it comes back up and hits it again, and it moves away from it immediately. Well, now maybe we have a double top.

So if you — and the line chart is a clue here. Again, you’ll see this in the video that I’m  posting in the show notes for this episode but I think the most important thing here is  what are the rules? What is it look like when the market’s going to break through its own, in support resistance zone?

What I’ve found in my testing is that it usually hangs around on its own. It’s just that you know 7 of the last 9 candles, have the wick of the high has pushed into the resistance zone then it’s probably going to break it.

Whereas, let’s say only 4 candles out of the last 10 have touched that zone and maybe you’re looking at a double top. It’s hard to explain this here and I know the videos will make more sense when you see that in the show notes but, for right now, that’s just kind of my rule.  

I don’t look at overbought or oversold or anything on the RSI or Stochastics or anything like that. What I’m just looking at is,

Would you do anything for money?

In this episode of Truth About FX, Walter digs into what really makes a trader successful. Is it the money or driving a brand new Ferrari? According to Walter, having this one key element can define a trader’s success or failure. He tackles the importance of understanding risk and knowing yourself.

Hugh also shares his idea of what a successful trader is and what other people perceive as being a “successful trader”.

Download (Duration: 10:07 / 11.5 MB)

In This Episode:

00:47 – scrapping the system

02:12 – fair-weather trader

05:12 – submerged

07:32 – morals for a buck

09:43 – try to withstand

Tweetables:

Understand the dynamics of risk. [Click To Tweet].

Be true to who you are.  [Click To Tweet].

Am I able to let it go? [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 define success in forex trading? I mean, obviously, that varies by individual but it’ll be interesting. I’ll be interested to hear your definition.

Walter: Probably a successful trader to me is one that can go through a drawdown with a perspective. If you go through a drawdown and you find yourself changing your system; or if you go through a drawdown and at least find yourself completely scrapping the system, not even changing the rules but just completely throwing it away; or if you go through a drawdown and have really emotional pain, consider giving in into that dark place and reconsider your life as a trader; all of those things come from the root of either not understanding the dynamics of your system or more likely not understanding risk and the definition of risk for your trading.

Being able to go through those drawdowns is really what I consider a successful trader. I’m not the only one. If you talk to other traders who’ve been around for awhile, longer than me, they’ll tell you it doesn’t really matter that there’s a drawdown. Everyone has them.

What matters is what do you do after your drawdown. Are you going to pull yourself out of it or do you freak out and do you change the game? That’s the main thing here. It’s to make sure you know everything that you need to know about the drawdown that’s coming because everyone listening to this is going to have a drawdown.

If you’re not in one right now, you’re going to have one that’s going to be terrible. That’s trading. That’s it. I mean, if you look back and you look at these famous traders like Jesse Livermore and a guy that I know — that I knew — these traders, they couldn’t handle the drawdown and that’s the end of them.

That was literally the end of them because they couldn’t handle a drawdown. Understanding the dynamics of risk and how that plays into your future drawdown and how are you going to get out of it, that really the key part of it to me.

Not trying to be a fair-weather trader where you’re always going to what...

In this episode of Truth About FX, Walter talks about using automated tools in forex trading systems. Is it reliable? How “automated” should it be? He also digs into the latest trends in forex trading and some of the most successful traders that are using them.

Download (Duration: 02:38 / 3.02 MB)

In This Episode:

00:52 – makes life easier

01:29 – tons of backtesting

02:03 – guide

Tweetables:

Emphasizing the testing part. [Click To Tweet].

Take a snapshot now and see the future.  [Click To Tweet].

Do tons of backtesting. [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. So, what are the latest trends in FX trading that you’re seeing in your Naked Forex Now Community?

Walter: That’s interesting. I think it seems like a lot of traders — not everyone, but a lot of traders — are getting into this, to using automated tools. Even if it’s not a straight EA, they like to use — I am too, I like to use — automation to trail trades, to move to break even, things like that. Add positions, those are the kinds of things I think that just makes your life a little easier.

I’ve noticed that some traders are getting into that. Some traders are following our friend Enho and his fundamental analysis which is interesting. I think that a lot of traders are — the best traders — you can take a snapshot now and you can see what the future is going to look like.

If I took a snapshot now — the traders that I know in the forum — and then I said, “What is it going to look like two years from now?” I could tell you right now based on what people are doing in the forum right now, who is going to be successful two years from now.

Those are guys who are doing all the backtesting. You’re doing, I know you’re doing tons of backtesting. These are the traders that I know that are probably going to end up on the right side of the game that two years in a row because they’re putting in work now.

A lot of people are just doing a lot of backtesting, posting their results, and becoming accountable for their thread. I think that’s so awesome because that’s the way that you build up your expertise. That’s my take, anyway.    

Hugh: Okay, cool. That’s awesome! If you guys want to check that out, there’s a lot of stuff going on in the forum so be sure to see what others are working on, for sure.

Walter: Yeah. There’s a lot stuff going on and I just thought, your website, you had a guide for beginners, beginner trader, right? Is that what I saw?  

Hugh: Yeah, I’m building that out. I think that’s one of the things I want to be offering. Emphasizing the testing part of it more like what you do.

Walter: Yeah. Well, I didn’t do testing but certainly it helped me.

Hugh: Yeah, for sure.

Walter: Alright, cool. Awesome!

Hugh: Coo!. Thanks, Walter.

In this episode of Truth About FX, Walter breaks down some of the stickiest situation every trader (whether you’re a noob or a pro) should be prepared for… And how to have the right mindset to get past them. He shares a “special email” from a friend and how you can benefit from this.

Download (Duration: 08:42 / 9.95 MB)

In This Episode:

00:31 – the biggest one

02:06 – wiped out

04:03 – real approach

07:14 – call an ambulance

08:05 – funky market

Tweetables:

Prepare to deal with risk. [Click To Tweet].

Make yourself an exit plan.  [Click To Tweet].

Take a break. [Click To Tweet].

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

Hugh: Hi, Walter. What are some of the situations that traders should be mentally prepared for before the situations happen?

Walter: What a great question. The biggest one is that you’re going to have a drawdown. It’s going to suck and you’re going to have to figure out a way to get out of it. That’s the biggest one.

Mentally, also making mistakes. You’re going to make mistakes whether it’s in execution, or somewhere along the line you miscalculated your risk or you chose the wrong broker.

Somewhere along the line, you made a mistake and you’ve got to deal with that too, as a trader. But, the biggest one and the number one thing that I believe separate those traders who make a living from this versus those traders who really struggle is that the traders who do well are able to pull themselves up out of the drawdown.

I mean, it’s as simple as that and it sounds crazy that, of course, I can withstand a 35% drawdown but it’s so true that people freak out. They do their backtesting and they go, “Oh, okay”.  

For example, I’ve got an email here from a guy yesterday and he said… He was saying that he did a backtest. He tested a system that we we’re talking about and I was sharing with him.

My friend, he messaged me in the forum and he said… He quoted this thing up and it’s for the H4 GBP/AUD and he found that it turned a $100,000 into $2 Million in two years. That’s the system that he traded, that he tested, which is great but then in the next two years, it completely wiped out the account.

Here is the thing, this is what you’re dealing with. You’re dealing with risk. The things that you need to be mentally prepared for are dealing with the risk issues. That really comes down to drawdowns.

You have to mentally prepare yourself for the drawdown that is going to occur and that you will be able to pull yourself up out of. You can do it. It’s possible. It might seem like it’s crazy and if you do crazy things, it will be difficult to get out of.

Like, if you’re in a 10% drawdown and you start taking twice the risk to get out of it or if you start Martingale trading or whatever, that’s where the problem is. The biggest thing you need to have is a plan.

In this episode of Truth About FX, Walter digs into probably the one of the most asked questions in forex trading: what are the pros and cons of trading live? He talks about the positive and negative aspect of different trading types, in general, and what might be the most beneficial for you in terms of your beliefs and lifestyle.

And do you know what monkeys and bananas have one thing in common with trading and charts?

Download (Duration: 07:52 / 9.00 MB)

In This Episode:

00:42 – not the best

01:18 – training wheels

03:02 – ugly charts

05:50 – tangible

07:13 – great to start

Tweetables:

Leverage is like fire. [Click To Tweet].

Start with share trading.  [Click To Tweet].

Forex charts are beautiful. [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. Here’s a question that somebody wrote in recently. What are the pros and cons of forex trading?

Walter: Well, that’s a big picture to view, isn’t it? I mean, it sounds like someone is getting into trading for the first time. In a lot of ways, I have to say it’s probably not the best place to start trading.

That might be weird to hear that but I actually think that share trading — or stock trading as they call it in different countries — I think that is easier to trade I think because most stock traders are just buying, they’re not selling. That immediately removes half the decision. That makes the decision twice as easy.

Hugh: And complications.

Walter: Yeah. And, they tend to go up like most stocks tend to go up in a rising markets when the markets are really strong, if the Dollar’s strong, the NASDAQ or whatever — the Footsie — a lot of stocks will tend to follow. It’s not always the case but it’s kind of like forex trading with training wheels because you only want to buy.

Typically, it’s easy if the market is really bullish to ride that trend and take a buy out of it. To me, I would say the pros of forex trading is that you have leverage which can of course burn you.

Leverage is like fire. It can cook your food or burn your house down. You’ve got to be really careful on how to use it. You can move a small account to a large amount of money rather quickly with forex trading because of the leverage.

You could also blow up your account and owe your broker money quickly because of the leverage. The pros is you have more leverage typically than you’re going to get in stock trading or share trading. But, share trading is easier because it’s usually just the question is where do I buy and where do I put my stop loss.

I mean, that’s usually the question. Whereas, in forex, it’s “Do I buy, do I sell and where to put my stop loss?” And of course, “How am I going to take profit” and all that comes to it as well and that’s really critical.

I would say that the pros of forex trading and all that, you can trade it at any time.

In this episode of Truth About FX, Walter walks you through using fundamental analysis in “predicting” future shifts in interest rates — from a technical trader’s view — and how you can take advantage of expectations. He takes the example of an important political figure’s speech that changed the anticipation towards GBP and how this kind of news can really make or break your trade. He also recommends “solid” traders for those that are looking for the “secret sauce” of fundamental trading.

Download (Duration: 07:21 / 8.41 MB)

In This Episode:

00:37 – play off

02:49 – surprise news

04:41 – naked chart

06:30 – get out

Tweetables:

Look to a really far away target. [Click To Tweet].

Pay attention to surprise news.  [Click To Tweet].

Take the trade early. [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 I use fundamental analysis to determine the future or expected interest rates changes by Central Banks?

Walter: Well, I’m really more of a technical trader, that’s what I’ll say about that. Here is what you can do. You can play off of the expectations — and I think that’s what most fundamental traders do. They play off expectations.

For example, as we are recording this, yesterday I was doing a webinar with some traders and we were like 13 minutes away from some major news in the United Kingdom.

What was happening on the charts was the chart was a really bullish chart on the Pound. I was looking at the GBP/USD and I said, “I don’t know what she’s going to say.” It was the Prime Minister Theresa May and she’s going to make an announcement.

I said, “I don’t know what she’s going to say” — and I’ll post this video for those of you that are interested in this. I’ll post it in the shownotes so you can see what I’m talking about. It was a very bullish pattern on the H1 chart. I don’t know what she’s going to say but my guess is it’s going to be bullish for the Pound.

The only reason I say that is because I see a bullish pattern here. Now, nobody knew what she’s going to say except for a few — probably speechwriters or whatever — and the Pound was actually kind of doing like a fake out move or was like moving down and then wobbling around and getting really volatile on the back of her announcement which was 13 minutes away at the time of the recording of the webinar.

Or, at least at the time, we’re looking at the chart and so what end up happening was she said, “Yeah, we’re going to have a surprise election”. She called an election and that wasn’t really expected at all and the Pound took off massively.

I’m sure you know, you saw the charts last night too or in this morning or whatever...