Forex Backtesting

Forex backtesting is the process of going through charts from previous years, weeks or days to confirm the effectivity of a system. Simply put, you look at past charts to know if your system worked well as you predicted or failed. Every new and experienced forex trader do backtesting because it allows the trader to gain knowledge and confidence on his system and make necessary tweaks and rule to find the system that works for them.

Forex Backtesting Software

Most forex companies will let you view at past charts or even download them, where you can mark (using pencil and paper) and trade by looking at one bar at a time (simulating a real trade session).

There are some software that will do this for you. One is forex tester. Well, I think, its the only back testing software out there. Either the forex brokerage company has a feature or not, you can either trade manually or demo trading. Demo trading can be long and tiresome. Using a back testing software, you can instantly test your strategy because you can control the time when each bar will appear.

Conclusion: Whatever method you take, always remember to test your strategy before trading live. Either by backtesting, paper trading or demo trading. You must gain full confidence on your trading system.

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EURUSD Long Position Forex Trading

Screen shot 2013-08-08 at 9.11.53 AMI opened this position yesterday and currently running at +33 pips as of this writing. The reason for this trade is different from my usual. That is because I’m trying out a new strategy that I discovered while researching about automated trading.

This is a contrarian trade and I may be wrong. I’m posting this for research purposes.

 

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How to Get Out Of Losing Trades

Screen shot 2014-02-25 at 7.06.25 PMAs far as forex trading goes, every trading system has their own rules for entry and exit, their money management and risk and rewards. But system rules, entry and money management are the easiest part of the system. The hardest part of the system is the “exit” because its where you’ll make or lose money.

What’s even worse is if the position is a losing proposition. Clicking that exit button might seem like a Herculean task of discipline and strength. Most people breakdown at this point and fall into the abyss of self-denial, thinking that the market will eventually comes back and recuperate their losses. But the market never did come back and his trading account, vanished.

I’m here to tell you what I think about losing trades, how to ease the pain it brings, how to get out gracefully and how avoid it in the first place.

Avoid Losing Trades by Concentrating more on the Exit

When you see a trade, focus on the exit rather than the entry. A newbie forex trader will try to “imagine” patterns when they see an entry signal. And sometimes, deliberately try to convince themselves that the pattern is indeed 100% accurate. They become obsessed at proving themselves that they are right. You should do the opposite. You should always try to prove yourself wrong and always look for the exit rather than the entry.

As I quote Sun Tzu’s Art of War:

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”.

Know beforehand that your exit will be profitable and you have won that trade even before you make it. As you make this approach, you’ll notice that you’ll have fewer and fewer trades. But the quality of those trades will certainly increase.

Immediately Close a Losing Trade and Move On

This is probably the hardest action to take for a losing trade. Accepting the fact that you’re wrong is a sign that you have matured as a trader. While newbies will try to hold on to the trade wishing that the market would bounce back. There are probably another school of thought when it comes to this strategy. The market does not go in a straight line and they wait for it to bounce back even for a little. That is perhaps true. But I would rather end it now than to hope that the market will come back for me. What if I’m wrong on that part as well? Being wrong twice in a single trade could be the worst feeling and it could harm your future trades.

Never Risk Too Much Money

All in all, it all goes down to the amount of money in a trade. Demo trading is fun because the money used is not real. And so, every losing trade in a demo account is nothing to you. But if real money is at stake, “shit hits the fan” too much too often. Risk only the amount of money you are comfortable with. You need to have a good money management strategy on top of your trading system. This is different for every people. That’s why we have a term risk appetite. Some people likes to risk high and some people don’t. I don’t personally like risking alot of money in a single trade. Well, I used to risk a lot, but I’ve changed.

Personally, the amount of money I risk in a single trade is 2%. Max. I don’t go over that. I have found that I’m very much comfortable losing that amount of money and so I don’t panic when I have losing trade. I just kill that losing trade and move on.

Whatever you do, losing trade is not a good feeling to have. But remember that forex trading is a business and should be treated as such.

Week 9: Looking to Enter This Week

Our patience is paying off. Our prediction is steadily taking its course. We are looking to open a position next week. Hopefully, price will reach the red line, which I assume to be the top. Our stop loss, near that line.

We are still on our plan and still following that plan thus far. Remember: We only need to get 1 big trend to make money. But in order to make the most out of that trend, we must get into the top or the bottom of that trend. Get into the exact turnaround of the trend. So we have the maximum amount of profit possible. We risk as big as we can possibly get once we know that all our setups are right.

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Short Position on USDCHF

Forex Trading

USDCHF 4 Hour Chart

Howdy! Its been a while since I last made a post here. Sorry for all the people who still read this blog. I’ve been busy with life and other things. But forex trading will always be one of those things that I could not give up. I always check the market, once a day. And only take a position unless I’m very sure that the trade will have a high probability of success. Do I trade as frequently as I used to? No. But I still trade when I think there is a high chance to profit. I think I’m growing into more of an investor in this regard, rather than a trader. Because I don’t want to watch over trades everyday once I made a position.

As I grow as a trader, I realize that respect for the market is more important than any other skill. When I respected the market, I don’t go for trades that are “pwede na” (just about right) to my criteria for entry. It should be exactly as I want it. I guess respect and discipline comes hand in hand.

I made this trade last Feb 5, 2014, Shorting USDCHF. a 4 hour chart using Ichimoku. And its been going along just fine… I still don’t see any warning signs that the trend is going to reverse, so I’m still holding unto it.

Forex Trading – Are you really focusing on the right things?

mountains

Here’s what I realized during my last hike over the mountains, that mountaineers and forex traders has a lot in common.

First mountaineers need tools to make the trip easier. You have a lot of things to carry and all of it must fit in your backpack. Only necessities are needed. Forex traders are the same thing. They need tools to get better trades.

But things gets a little nasty when mountaineers and traders fall into the trap of having too much of the needed things. Mountaineers who bring with them more than anything necessary will suffer the burden of carrying that to the top of the mountain. Just like forex traders suffer from analysis paralysis when there’s too much clutter and information.

In short, too much of something is bad for both.

I have seen mountaineers pack so much stuff in their bags to the point that they can not carry anymore. Stuff that they don’t need. It does defeat the purpose of the trip. They avail the services of “porters”. Which defeats the purpose of the activity. To survive using the bare essentials. They try to use money for their lack of physical fitness. For forex traders, this is sometimes the same. Newbie forex traders will gladly spend money on seminars that won’t help them be able to stand on their own. To survive. Just like a newbie mountaineer’s mistake. Paying money for the lack of experience. As if you could instantly learn how to trade.

Well, maybe you’re not focusing on the right things. Though paying someone to carry your stuff works. Is it the right thing to do? I mean, you went mountaineering probably to become fit right? Why not harden your body so you could enjoy the trip. Are you going to pay for someone to carry your stuff all the time? You don’t need someone to carry your stuff, you just need a fitter body or lesser stuff to bring.

Same goes for forex trading, are you really focusing on the right things? Even if your mentor taught you how to trade. I wonder how far could you go with that system. I doubt it, its not very far. Why? Because you paid someone to tell you how to trade. Its not something that would stick to you like a true experience of losing and winning on your own trades. Just like a body of a mountaineer won’t get tougher by choosing the easy way of paying someone to carry your stuff. And, do you really need 10 indicators on your chart? Tell me how that’s working for you.

A lot of good things in life, like mastery of skills or improvement of body and health, comes from the fact that you went into a lot of hardship to learn. This is not something you should ran away or “trick” yourself into. Thinking that someone, something or any outside force can teach you how to trade. It will not. “I can’t not trade, I need a mentor.” Well, maybe not. Maybe what you need is a little more experience…

EURUSD +1,687 Pips

Screen shot 2013-10-24 at 11.06.09 AM

Entering a trade inside a kumo, betting that the cloud won’t break. This is what I think while I opened the trade in EURUSD. It has proven to be an effective strategy. As you know, a flat line in a kumo cloud means a strong resistance. While I also drew my own resistance lines, Ichimoku confirmed that it indeed has a high probability that it will not break. So I bet more. The resistance at 1.3500 is a dead giveaway for me. Look at the candlesticks lining up in a straight line. :) That’s another opportunity to add more position from the profit I had on the first to trades near 1.33 and 1.32.

Total pips gained so far +1,687

Screen shot 2013-10-24 at 11.05.56 AMHappy trading.

 

US Government Shutdown and How to Trade It

I was surprised by the news when it was revealed that the US Government will be shutting down. This could be a great opportunity if you’re that kind of trader. How can we make money with this news?

The answer is… You don’t trade.

This site has been created for the sole purpose of teaching myself how to trade forex. By documenting it, I realized that people have also been able to make something out of it and help them get started. During the years I have been trading, there’s always 1 rule that I always remember when I hear news like this. Follow your trading plan.

Your trading plan has a purpose. You created that plan. If a news comes out, and you abandon it, you’re into a world of trouble. Part of trading forex is the discipline to say NO, no matter how enticing the news might be for you to make a profit.

Always remember to never trade the news. If you’re a kind of trader that uses the news, then thats good. More power to you. Why the hell are you on my site by the way? :)