Truth About FX

In this episode of Truth About FX, Walter talks about the most aggressive trading system — and is there really such thing? He talks about positioning and what makes an aggressive system “aggressive”.

Download (Duration: 04:24 / 5:04 MB)

In This Episode:

00:34 – aggressive and crazy

01:43 – more sophisticated

02:45 – super aggressive

03:56 – pancaking

05:54 – worth a lot

07:16 – it kills you

Tweetables:

Pile onto a winner like a pyramid [Click To Tweet].

Never loose sleep because of a trade  [Click To Tweet].

Adjust your stop loss  [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 question comes quite a bit but what is the most aggressive trading system you’ve ever seen?

Walter: Wow, there’s so many. I mean, you know any kind of a Martingale thing is pretty aggressive and seems crazy to me but I guess if we’re just talking about something that I consider tradable, probably systems where you’re really piling in on a winner.

Like, pyramiding or some sort of pyramiding system where you add to your winners. I used to do this about ten years ago. Now really — nine years ago now — what I used to do is whenever I was giving in a strong trend, I would add positions as it gets closer to my target.

Now, I wouldn’t do it on every position but I did it on those where it looked like the market had a long ways to go. So if it looks like it can move really, really strongly in my favor — if it went — I would add these positions and it would be like for example, you took 3 lots in your first position then it goes 50% on the way to your target, I might add 5 lots.

Then it goes 70% to my target, I might add 6 lots and then when it goes 80% to my target, I might add 9 lots. I’ve got like all of these at the end of the position. You’ve got so many and there wasn’t really any breakeven set. I didn’t have breakeven thing.

I am more sophisticated now. I use sort of a breakeven thing. A lot of traders do this where if it retraces against you, you get popped out breakeven rather than actually risking too much. But, back in those days, I would set an alarm.

So when these got triggered, I would have to wake up usually in the middle of the night when the New York Session starts trading and I’d go in and basically get out of these crazy positions where I had… You know originally I had 3 lots on, now I’ve got 14 or something.

To me, that was probably I guess the most aggressive system. It’s difficult because you had to be really quick to get out of those even if you haven’t necessarily hit your target and you have to be okay with your last position, maybe even losing a little bit of money because there’s risk on that.  

From my point of view, as a tradable system, that’s probably the most aggressive but any of those systems where they have a loser then they double down and take twice the...

In this episode of Truth About FX, Walter talks about Jesse Livermore, his book, life, and history as one of the most revered forex traders. What made him the trader that he was? Walter also talks about risk management and how Jesse Livermore’s life could set as an example when it comes to psychology, strategy, and dealing with losses.

Download (Duration: 04:24 / 5:04 MB)

In This Episode:

00:27 – right and wrong

01:36 – warning

03:06 – sit and wait

04:01 – wild sums of money

Tweetables:

Risk management is the name of the game [Click To Tweet].

Look no further than Jesse Livermore  [Click To Tweet].

Made real money by waiting  [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 you think was right and wrong about Jesse Livermore’s trading Psychology?

Walter: Great question, Hugh. There’s a couple of things that stand out. First of all, a lot of people probably don’t know or maybe you do know that Jesse Livermore took his own life.

I know a lot of people talked about how his book was so great and all that or the thinly veiled biography “Reminiscences of a Stock Operator”. We can put the link for that in the shownotes for this episode so that you can check it out if you haven’t read the book. It kind of relates to forex traders today even because back in the day, Jesse was trading with these crooked brokers that they called “bucket shops”.

Forex has a dirty name too because of these crooked brokers or whatever and people selling you automated robots. It has a dirty name. You can relate to Jesse’s world where people were going in trading with these so-called bucket shops.

But, here is the thing about Jesse, two things that stand out for me. Number one is he took his own life so if there’s some sort of warning to traders out there that risk management is really the name of the game and being on top of that, look no further than Jesse Livermore.

He is a well-known, well-established, and really sort of revered trader. He took his own life and that tells you right there all you need to know so that’s number one. Keep that in mind.

Number two is the book is great. It’s an excellent book but for me what really stood out was his quote where he says something along the lines of — again, I’ll link this up in the shownotes so you guys can see it. But, Jesse Livermore says something along the lines of this, he say, “Look, any fool can be right to buy at the right time or sell at the right time in the market. Any fool can do that, anyone.”

It happens everyday that someone gets into a trade at the perfect time. He says, “It takes real guts and patience to wait it out and that was where my real money was made”. You got that? I made my real money by waiting.

And so, that’s something that I think a lot of people should probably...

In this episode of Truth About FX, Walter talks about probably one of the most commonly misunderstood traders: what are discretionary traders? And what draws the line between discretionary trading and algorithmic trading? According to Walter, every trader has rules and there are traders who uses their gut. But, not every rule should be translated into codes.

Download (Duration: 06:22/ 7.29 MB)

In This Episode:

00:33 – struck a nerve

02:24 – a code

03:18 – bad name

04:56 – over optimizing

Tweetables:

You may lose some things by using codes [Click To Tweet].

Don’t let them bring you down  [Click To Tweet].

You might miss something that you can use  [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 does it really mean to be a discretionary trader? Does this mean that I trade more on feel or do I actually use a system?  

Walter: Okay. This person, this listener, struck a nerve with me because this is something that comes up a lot. People will say like, “You’re a discretionary trader because you don’t have rules” or, “If you can’t automate it then you’re a discretionary trader”.

I understand why they are saying that and usually the hard core algo guys, the EA guys, are the ones that are saying this stuff and I get it. I get what they’re saying. If you can’t code it up then you’re not trading a system or they’ll say something like that.

You can’t code it up, if you can’t get your system down and code it up and turn it into EA, then you’re not trading your trading system. You’re doing something different, you’re trading on your gut.

That kind of gets me because what I will say and what I’ve noticed about these EA guys and these algo guys is that typically, they’ll see something in the charts and then they’ll code it up and they’ll go, “What? It doesn’t work. Why hasn’t it work?”

The reason why it doesn’t work is because they’re seeing something else in the charts in the way that they would trade it or in the way that they see the charts and they’re not putting into their code.

They’re actually missing something that you can use and you can leverage off of if you’re a discretionary trader but you can if you’re an EA trader, if that makes any sense. So, basically, what I’m saying here is that a discretionary trader can take their system and turn it into rules.

You can list all those rules. However, you may lose something if you take those rules and you turn it into a code. That is something that I would say here is that every discretionary trader should be able to sit down and go “This is my trading system” and they can write a bunch of rules but turning that into a code is something else and you may lose out on somethings when you turn it into a code.

I don’t think that necessarily every discretionary trader who trades systematically and has trading rules should be able to turn it into a code. Now,

In this episode of Truth About FX, Walter gives away some very reliable points how to get the most of your backtesting data. He talks about market segments, market types, and currency pairs…so what do all these have to do with your backtesting?

Walter affirms the need to look at different point of views and the importance of forex testers. All this and more here in this episode…

Download (Duration: 04:16/ 4.89 MB)

In This Episode:

00:42 – hire someone

01:56 – pull sections out

03:20 – take snippets

Tweetables:

What style of market are you in? [Click To Tweet].

Capture different styles of markets.  [Click To Tweet].

Take snippets of different pairs that you’re trading.  [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’ve got this question recently. This person says, “I want to backtest a day trading system” — I think it’s a scalping system, to be specific — “but there’s no way that I’m going to test 16 years of data for every currency pair. What do I do to make sure that I am getting a good backtest?”   

Walter: Okay. Maybe you can hire someone else to do the backtest then hire them to do trading for you. I don’t know. It’s like saying, “Hey! I really, really want to be a brain surgeon but I just don’t want to go to medical school. What am I going to do here?”

I don’t know what to tell you you’ve got to earn it somewhere. Here’s what I would say — all silliness but that’s really kind of. This is what the person is saying, “I want to do the scalping system and I want to verify it but I don’t really want to do the work that is involved when I verify it.”

You could do an automated backtest but that doesn’t make a lot of sense because you have data problems in most cases and you also — if you’re going to be trading it manually which is what it sound like — you probably do not want to do an automated backtest because you probably going to be trading it differently than the computer would.

The other thing is, 16 years of data. So, let’s say for every currency pair, this is what you could do; you could take some random sample periods. Let’s say, you want to trade on the EUR/USD, the JPY/YEN, the CAD/USD and the AUD/NZD.

Let’s say those are the ones that you want to do. What you might do is you might pull sections out. You go, “Okay. We’ll, see what it’s like trading it on the EUR/USD from December 2013 to March 2014 and then see what it is like trading it, that same system on the EUR/USD July 2006 to December 2006.”

So, you take segments and what you want to make sure that you’re doing here is  you are capturing different styles of markets like different seasons, so to speak, trending markets and directionless markets.

You want to see volatile markets and quiet markets, you want to make sure that you’re taking snippets of periods that you’re testing.

In this episode of Truth About FX, Walter puts the pieces of the puzzle: what type of market should you be trading based on your system? Or, should it be the other way around? Walter breaks it down into several parts and gives emphasis into identifying the market mood and figuring out which trend is tailored for you based on your system and biases.

Download (Duration: 07:18 / 8.36 MB)

In This Episode:

00:50 – not working

01:47 – different moods

03:51 – not very clean

05:13 – the way it works

06:35 – filter

Tweetables:

Identify the mood of the market [Click To Tweet].

Take advantage of these bigger moves  [Click To Tweet].

Wait for the trend to show up  [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 the biggest reasons why traders have a few great months then give it all back? How can we solve that?

Walter: This is such a great question because I’ve been working on this for the last 18 months, 16 months. Here is something that I’ll share that I’ve learned. First of all, why this happened?

The first part of the question, why this happened? Obviously, this happens because if you are trading one-trading system, your trading system is not going to work in all types of markets.

If you are trading a trend system, system that breaks out or there’s something similar like that, what’s going to happen is when the market is in a strong trend, moving really strongly in one direction — up or down, it doesn’t matter — you’re going to do well.

Likewise, if you have a reversion to the mean system where price goes too far and then it snaps back and Bollinger Band edge, and you traded it back in the middle or whatever — those sorts of things like Stochastics or whatever — if you’re trading that kind of system, you’re going to do really well when the market is ranging and not really going anywhere but as soon as it starts trending, you’re going to get blasted.

Here’s the question: how do you deal with this? How do you solve it? It turns out that — and this isn’t my idea but I’ve been reading and many traders and researching on this. Many traders basically set it up say you can characterize the market in different moods.

If you can identify what the mood of the market is, you can switch on and off your various systems. Let’s say I’ve diversified and only have two systems. I have one system where if the markets gets to the upper edge of the Bollinger Band, I sell and I sell it back to the moving average in the middle of the Bollinger Band. That’s my reversion the mean system.

Then I have a trend trading system which is like the trending Kangaroo Tail. Whenever the market starts going into one direction and prints a trending Kangaroo Tail, I’ll take those trades and I’ll go with the trend.

So, those are my two systems and I know that one of them is going to do w...

In this episode of Truth About FX, Walter cracks the shell of probably one of the most common questions, especially for newbie traders: What is risk of ruin? And, more importantly, why should you really car about this.

He talks about its relevance to understanding your trading limitations and making this an important tool in making your own trading system.

Download (Duration: 02:40 / 3.06 MB)

In This Episode:

00:28 – why should I care?

01:56 – the best skill

02:18 – not so sexy

Tweetables:

Risk of ruin is your most important number [Click To Tweet].

It’s the one thing that you need to know  [Click To Tweet].

Know where is it that you should stop  [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. As a trader, what is risk of ruin and why should I care?  

Walter: This is such a great question. The main reason why is because the risk of ruin and the risk of drawdown — which is related to the risk of ruin — is probably your most important number.

Most people are going to look at win rate, most people are going to look at return or profit factor, or how many trade I can take in the next four hours or whatever. But, really, the risk of ruin is why people blow up their accounts. It’s why  they lose everything, it’s why they freak out, it’s why they hurt themselves or worse, it’s why trading sucks for a lot of people.

It’s because they don’t have a grasp of what’s the risk of ruin is. I’ll post in the show notes here. I’ve done this before but I want you guys to have a video on the risk of ruin and the calculator.

You can use it, check it out, play with it, figure out how it works. The point is you need to know when you go into trading a system live, you need to know where is it that I’m going to say, “Hey! This is it. I’m done. I quit. I’ve lost too much money”.

Once you know what that is, you can set yourself up so that you don’t go through those really difficult times. If you sat down and said, “Okay, I am going to figure out this trading thing,” and there was one where you’d said, “What’s the one thing I need to know?,” it would be the risk of ruin.

The concept of risk of ruin and understanding how that works with your trading system and how your position sizing and all that is related to risk of ruin, risk or drawdown. If you can grasp that one thing, that is probably the best skill that you need in order to trade.

I know people think it’s the right entry and it’s the London Explosion System and all that. No, it’s not. It’s risk of ruin. Risk of ruin is what’s going to help you do this for a long time in many years, basically. That’s why you should care, basically. It’s the most important number. It’s the most important trading concept.

Hugh: Awesome! It’s not so sexy but it’s going to get you through, right?  

Walter: Exactly.

In this episode of Truth About FX, Walter answers a classic question: how much risk should I have on every trade? He shares important key points to keep in mind when deciding this. He also touches on building confidence and easy steps that you should take when testing systems…

And, when is the best time to buy a forex tester?

Download (Duration: 08:29 / 9.71 MB)

In This Episode:

00:36 – classic question

02:44 – take off

04:13 – aggressive risk

06:01 – the best time

07:36 – real kicker

Tweetables:

Start by buying a froex tester [Click To Tweet].

Set a risk percentage on every trade.  [Click To Tweet].

Build your confidence through experience  [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. Great to be back! How are you?

Hugh: Pretty good. Getting back to the swing of things. So, this question is, how much should I risk on every trade?

I guess this is the classic question that everybody asks when they’re getting started.

Walter: Yeah, right. Well, like most things in life, it depends. Here’s the thing, there’s a couple of things to keep in mind. Number one is you will stop trading because of the drawdowns that you experience.

Believe it or not, that is completely under your control. By adjusting the amount that you risk on every trade, assuming of course that you’re using a model where you risk a certain set percentage per trade, set percentage on every trade.

I’ll put in the shownotes, I’ll link up the calculator so that you can go through and calculate this out on your own. If you know what your average winner is, what your average loser is, and what your win rate is, you can determine the likelihood that you’ll reach a drawdown of x%.

Let’s say that you do not want to have a 25% drawdown. Then, knowing your win rate, your average winner and your average loser, you can work this out. That is one thing to keep in mind.

Most people will stop trading because they’ve risked too much and they’ve hit a drawdown that they just can’t stomach. They’ll say things like, “Oh! The market has changed” or “my system does not work anymore, I’m  freaking out.” And then, they’ll go and find something else. That’s the number one thing.

Number two is, what is your goal? What is your goal is the kind of question that I was talking about before when we’re talking about drawdown, which is what your goal should be and what your call is may not be aligned.

What your goal should be is to avoid a drawdown that is going to make you freak out because that is why most traders stop trading their particular system. It is because they freak out.

You can backwards engineer that and figure out the amount at risk per trade to avoid that. The other thing is what if you are the kind of gu...

How long should a man’s leg be?

In this episode of Truth About FX, Walter breaks down the age-old question: how is the market created? Or, is it really something that can be manipulated? If so, how can you take advantage of it?

He shares about an iconic event that made a fellow trader, James Kensington, probably one of the few forex traders that profited through Brexit 2016, how it really happened…

And what you could learn from Abraham Lincoln — wait, what?

Download (Duration: 04:50 / 5.53 MB)

In This Episode:

00:33 – the famous question

01:30 – cheeky way

02:08 – question and challenge

04:10 – weeding out

Tweetables:

Everyone has their own ideas about the market [Click To Tweet].

Question things and see for yourself [Click To Tweet].

Trade what you see and not what you think  [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 creates the biggest moves in the market and how can I profit from them?

Walter: This reminds me of the question that they asked Abraham Lincoln. Do you remember that famous question, Hugh?

Hugh: Yeah.

Walter: They say, “How long should a man’s leg be?” “I suppose long enough to reach the ground.”

I mean, this is sounding like where you’re going to get depending on who you ask. You’re going to get a total… It’s a rainbow, an assortment of flavors. Some people are going to tell you it’s the news.

For example, bank announcement. Central Bank unemployment, elections, the London open, market goes too far and it has to reverse or surprise. This is what makes the market. This is the real cool thing that makes the market.

Is that everyone has their own ideas about where the market’s going and without though, if everyone thought the same and we wouldn’t really have any disagreement on price, people would not be exchanging anything, really.

This isn’t really… To me, I don’t know how to answer this. I know that the cheeky way to answer this say momentum. There isn’t, really. I guess, this is one of those things where, like I said, I would just refer to the Abraham Lincoln question.

I really don’t think that anyone is in authority. Actually, this is a red flag. If somebody tells you that x is the reason why you get these big moves in the market, I would question that.

I would question anything, really, just anything I say, anything Hugh says, question it and see for yourself. That is a great way to live instead of allowing people to tell you what to believe.

If someone is telling you, “Look, this is what happened. This is what creates..” I would definitely question that and challenge that because it is probably not true. It maybe true to them but it may not be the actual truth.

Like I said, this is what creates the markets. Unfortunately, that is not an easy question to answer.   

In this episode of Truth About FX, Walter and Hugh dig into various ways of making use of those gaps in the charts, and how you could profit from them. How big is it? And what are some of the strategies that you could use to take advantage of this? Find out more on this episode…

Download (Duration: 03:29 / 3.99 MB)

In This Episode:

00:27 – gaps

01:38 – how big?

02:01 – come and see

Tweetables:

There’s so many different strategies [Click To Tweet].

Make sure that you keep using the same timeframe  [Click To Tweet].

There are many different ways to profit from the gap  [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. Is there any way to profit from gaps on the charts?

Walter: Absolutely. We look at these every week. In the show notes below, you’ll see the link to the free webinar that I do every week. We look at these, it’s pretty simple. There are many different ways to do it.

The biggest question you have to ask yourself is when you trade these gaps, is the gap in alignment with the overall recent move of these market?

For example, if the market is going up — let’s say the EUR/USD is going up — and then you see a gap down so when that gap happens, you expect the market to go up to close that gap.

That makes a lot of sense to people but when you see the market going up — let’s say the EUR is going up — and then on Sunday, a gap opens up so it has to actually retrace and fall down to close that gap.

Those are the sorts of questions you have to ask yourself. The big question here is going to be, is it with the overall movement of the market? It could be a sideways market, it doesn’t matter. But, if the market has been going up, are you getting that gap down so that it has to keep going to close it or is it a counter trend gap?

The other thing to ask yourself is how big is this gap. I don’t even look at them unless they’re at least 25 pips. If they’re fewer than 25 pips, it is off the board for me. There’s so many different strategies. You can also trade them after they’ve closed.

There are many different ways to trade them. You do not have to do it right when they appear. You can trade them when they close. There’s lots of things you can do there. I would encourage you, if this is something that interests you, to sign up for the free webinar on the link below.

You can come and see how we do it. You could get the ebooks and all that even if you cannot make it to the webinar. Sometimes, it’s difficult for people in Europe to come because it’s really late for them.

There are definitely many different ways to do it. Some people do crazy things like, they use these wild stop losses that are really far away and stuff like that. That can hurt when they do not work out but, yeah,

CLICK HERE TO MEET JAMES KENSINGTON AT THE LONDON CONFERENCE

In this last part of Truth About FX special episode with James Kensington, Walter and James will spice up your trading menu with key ingredients that will help you find your success and consistency. They also point out the differences between private and public traders, their position-sizing strategy, and how you can really make us of the “Naked Trading Framework” with penny stocks.

You will also learn about the “lemmings in the market” and how important this is in making profits. And, what is this big, fat, lie about trading educations according to James?

Download (Duration: 37:51 / 43.3 MB)

In This Episode:

01:30 – big trading lie

03:56 – a taste of loss

06:05 – space trading

08:12 – key elements of trading

10:21 – naked framework

12:41 – traded by emotions

15:29 – people are random

18:14 – sentiments and convictions

21:15 – execution mistakes

23:22 – stand up desk

26:39 – statistically evident

30:10 – have a break

33:04 – little learning lessons

35:37 – support structure

37:14 – call a friend

Tweetables:

Put in a trade if it’s a good trade [Click To Tweet].

Start trading with a good support structure  [Click To Tweet].

You have to know yourself  [Click To Tweet].

Announcer: Sometimes, forex trading can be a wild and wooly place to be but, forex trading doesn’t have to be the bad lands for your partner. Instead, hunker down and bend your ear. You will be burning the breeze in no time here at the Truth About FX Podcast.

Walter: Hi, it’s Walter and in this episode, Part Three with James Kensington, you’re going to hear all about James’ space trading. What is it? You’ll learn that. You’ll also see the differences between private traders and public traders and James knows very well what these differences are.

You’ll get the key elements of trading success. James will show with you what he believes are the best elements, the key things, the key ingredients that you need to ratchet up your trading and find consistent trading success.

He talks about lemmings in the market as well and how to see these lemmings in the market. This is critical for forex traders because it’s really the key to how we make profits. He’ll also share with you his position sizing strategy.

This is something that is very unique to James. I learned a lot when I first heard this from James and he’s going to share with you how you use position sizing to your advantage. He’ll also talk about how you can use the Naked Trading Framework with penny stocks, which I find quite interesting. He use them well with that system as well.

Finally, James is going to jump into the big trading lie. This is the one big lie that we see trading education promotions all over the internet and it...