Contrarian Forex Trading

USD/JPY right after the Dollar Sell off, I placed a buy trade. Contradicting the market sentiment and news. And it paid off greatly with minimal risk.

There are a lot of forex traders out there and hundreds more forex trading system to choose from. But why I settled with contrarian trading is more of its match to my personality than any amount of percentages any system can deliver.

I would not promote my system to be the best trading system nor all other analysis are crap. I won’t even go far to say that one system fits all. The points of having the best forex trading system lies within the individual. Its like finding your soulmate, it must be a match.

A match to your personality. And that’s the beauty of trading, its both an art and a science. Its a science because you can explain all the data with numbers and predict some events that may occur based on that data, but its art to express your views of the world based on your strategy. Its a wonderful feeling. So finding the right strategy, system or method based on your world views and personality is the best forex trading system that you can use.

Stop searching for the holy grail. Stop going from one forex trading system to another. Know thyself and pick the right system for you. Make it your own then customize it to better fit you.

I am a contrarian trader. And has always been a contrarian all my life. I am the problem employee and the jerk in the group. My strong point is, I know what am. So I know what fits me. I don’t go pretend I’m a sheep just to be accepted. And forex trading is the best vehicle to express that view and be rewarded. When the whole world frown upon who thinks differently and does not conform. In the market, you get to be rich for thinking differently while staying anonymous in the process. Got to love that!

5 Mental Things You Need Before You Start Forex Trading

Job Security is an Illusion.

Many people want to be a forex trader. And I know a lot of people in my social circle who wants to be a trader. I even teach them how. Recommend them books, websites and strategy. But there seems to be people who is just damn scared to let go of their day job. Afraid to take the plunge. Afraid to be laughed at. Afraid to make something happen in their life.

They are just too contented by the way things are. Perhaps, too fucking contented… Safe, secure… “But I really want to be a millionaire trading forex”. Do you see what’s wrong there? There’s a lot of contradiction in that statement. Being a millionaire is NOT synonymous to being safe in a day job. Being a millionaire is synonymous to risking, having the balls to follow what you want in life and most importantly, its ignoring what other people may say to you. Be it “bat shit crazy for quitting a high paying job.”

Have The Balls to Follow Your Dreams

The hard working people that goes to the office everyday to work 9 hours a day. Be stuck at traffic, be soaking wet during the rainy seasons, are probably the most common. Talk to them and ask them if they want to have a business. 100% of the time they will answer something like this “I really want to have a business, but I don’t have any funds right now.” or “I want to have a business but I don’t know how or have no time”. Or whatever other reason they have. Its all wishy washy. I’ll do this after I do that then I pray to the flying spaghetti monster in the sky to let me win the lottery. Before they know it, they are 40 years old. Now, they have a different problem and a little different reason. “I’ll want to have a business but I’m not sure if I’m still young enough to learn all that.”

Hesitate and you will age. Run and you will die.

Ohh… How time flies…

Lose Your Ego

There’s nothing I enjoy more in watching other traders is their ability to talk about how confident they are in a market (stocks, bonds, commodities, forex). yet they can’t seem to accept the fact that they are wrong. And sometimes, which is more dangerous, they think they can predict where the market will go.

Forming a forum so you can exchange ideas (or persuade other traders) that your analysis is correct so you have a better confidence in your analysis. I don’t think that will do any good. Knowing first hand where your trade will go, before it even go there makes your mind closed. You are not open to the possibilities that your trade may reverse. Or it may give you a profit then reverse. The decision is based on ego that you are correct. And it will be harder for you to take a loss. And thus, you are fucked up inside. You can’t trade.

Think For Yourself

Does it matter if your friend is also LONG position on the same currency pair you are in? Does it matter if your technical trading mentor is SHORT on the EURUSD? Would you try to rationalize the idea that your LONG position on the EURUSD is wrong so you can join your mentor on the SHORT side?

This is the reason why I don’t like groups in trading. I think trading is like a boxing match. And I like it that way. You don’t need the spectator’s shout of advice. You are the one that’s getting hurt. Shouldn’t you worry about your own ass?

Have the Discipline

Of all things, discipline is probably the most important. It takes the most time to develop. And takes the most effort to practice. When lose control of yourself, you don’t even know. You sometimes don’t know that you are being greedy. Or being afraid. Self discipline makes you aware of those feeling and act accordingly. And most importantly, its the best skill to have if you want to learn a new skill. It is the trait of all successful trader out there.

Discipline is what makes the rich not use their money for parties or fancy cars. Not spend on hookers or drugs. Instead, use the money back into investing. That’s discipline. Focused on a goal. Whatever your goal is.

4 Useful Forex Tools and Resources

Hello my fellow forex trader. Today is my first post for the year 2011. It has been a late post because I’ve been busy. The usual boring stuff, business. Anyway, what I want to give you for today is a list of useful websites and tools that can help you learn or even master forex trading. The same tools and website I used to educate myself in this trade.

Before you spend your money on forex seminars here in the Philippines, read the list first. Most of the seminars that are offered locally are the same materials you’ll find online for free. Well… most of them. You want to save that money for investing. And in forex trading, you need all the money you can get.

#1 – Forex Education / Forex 101 / Forex Fundamentals

picture-3Babypips

There are a lot of forex education out there in the market and its for free. The one that’s particularly close to my heart is babypips.com. Simply because you have all the things you need to learn all in one place. And you won’t get overwhelmed by the information because you can learn at your own pace. Visit them and read some of their lessons. I’m pretty sure you’ll be spending a lot of time in babypips.

#2 – Forex Trading Journals

picture-4

MyFXBook

You need to keep track if you’re progressing or not. You need to know if you’re following your trading strategy. The use of forex trading journals is just that – to know if you’re diligently following your own rules. And to get into the habit of emotionless trading.

#3 – Forex Backtesting

Forex BacktesterForex Backtester

Before you go all out on live trading. I recommend doing demo trading for at least 8 months. At least 8 months should be at least 8 months profitable. The thing about forex backtesting or demo trading is that for you to be confident on your system and also be comfortable with your chosen trading platform. I personally don’t want to demo trade now because of time restraint. What I do is purchase a forex backtesting software such as forex backtester and trade in my computer anytime of the day. What this forex backtester software do is to import all the trading signals that happened for the last 10 years and you have a lot of information to work with. A lot of signals to test your strategy on. If you don’t have the money, forex demo trading is still good, but if time is more important for you than money then a forex backtester is the best investment to make for your forex education. (Absolutely than any forex semiar in my humblest opinion.)

#4 – A Forex Strategy to Follow


japanese-candlestick

Japanese candlestick charting techniques

Personally, this one is the hardest one to find, practice and decide. There seems to be a lot of different strategy in trading. And I recommend you try them all. See what works for you. Try them on your forex backtester or try it demo. Your forex strategy will be your main weapon to live, survive and thrive in the world of forex trading. Don’t forget that during your first 8 months practicing, should be spent on testing what forex strategy fits your personality. The reason why there are a lot of forex strategy out there is because there are a lot of people trading forex and each one of them will have a unique strategy based on their personality.

Diving into the world of forex strategy could be overwhelming as there are thousands upon thousands of them to choose from. In my personal opinion, your quest should start with this book. And your strategy should be based on candle stick chart readings. It is a technical way to reading forex charts that has been proven to be very effective.

My Cardinal Rules in Forex Trading

The more I lose in forex trading, the more I learn. I learn more things from losing than from winning. And as time goes by, I learn to adjust my thinking and strategy and learn to have a fixed set of ideas about the market that I use to trade with. These set of ideas are based on rules to help you become more successful in trading. These rules have changed the way I trade for the better and I hope it change yours too.

#1 – Never Lose Money

Rule # 1 is the most basic. Never lose money. The more you trade, the more you lose. That is why, you need rule number 1 to be picky on trades that will only result in winning. Keep in mind this rule every time. Before entering, while in the trade and before exiting the trade. Never lose money. You’ll last longer and learn faster.

#2 – Think For Yourself

Learn a forex strategy then stick with it. You enter and exit by those rules defined only by you. What your peers or your guru tells you is irrelevant. If he tells you to enter the trade, you are not trading, but he is. You are now dependent on him when to exit. Will you ever know when that is? Will you ever sleep at night?

#3 – Use A Non-Negotiable Stop

Stop loss should be non negotiable. You do not use a stop then try to adjust it because it will be hit by the price then hoping that the price comes back. Stick to the plan. Have a defined amount of risk, accept that risk and don’t whine if it got hit. Man up, take the loss, move on to the next trade.

#4 – Let Your Profits Run

I used to have a take profit when trading. But I soon realized that it doesn’t make sense. Why would I settle with a fixed profit if the market is willing to give me more? Throwing your greed aside, putting your stop loss on break even, then letting the trade run is a 0% risk with greater profit potential. Its definitely better than a measly profit for small risk.

#5 – Define Your Risk and Forget About The Target

In any trading and investing books that I read, these lines always comes up “Cut your losses short and let your profits run”. Its a combination of #3 and #4. In my own words, this also means, never add to losing positions or adjusting your stop loss because you are “afraid” to take a hit and then defining your profit target instead of “risking” for a chance to earn more.

#6 – Take Note of Your Mistakes

Reflect on each losing trade. What made you lose it? Did you follow your plan? Is it you who messed up the trade because of greed and fear? Or is it some underlying factor that you might have missed like news? Whatever that is, always reflect if you are following your system and what is wrong or missing with your system so you can adjust and adapt to the ever changing market.

#7 – Victory Loves Preparation

Waiting for the perfect time to enter is what makes forex trading exciting. Its damn hard to sit still while you wait for the perfect time to make that order. And then wait some more for the trade to unfold itself. Trading is waiting game. Its a damn exciting game I must say and usually, the person who waits and “prepare” himself for the high probability trade would be the winner. Not being swayed by the crowd is the hallmark of a great trader.

I got burned a few times because I got in so early. And got frustrated when I got left out by the trend. Patience is a virtue they say, but in forex trading, patience is money.

Trading Tips from The Pros

Do you know how professional traders make millions? Here are some tips from them.

Jesse Livermore: The Worlds Greatest Stock Trader by Richard Smitten
1. Don’t Lose money
2. Always Establish a Stop
3. Keep Cash in reserve
4. Let the (Successful) Position ride…until you have a Clear Reason to Sell.
5 Take the Profits in cash…and place 50% in a separate account

Lessons From the Greatest Stock Traders of all Time by John Boik
1. Trade with the Trend
2. Cut Losses short
3. Let Profits run
4. Manage Risk

How Legendary Traders made Millions by John Boik

1. Understand the General Trend of the market
2. Use the Knowledge of History in your Study and Observation of the Markets
3. Use your Own Research and Don’t Listen to Others
4. Buy the Leaders
5. Buy only on Breakouts and Use a Pyramiding Strategy to add to those Winners
6 Cut Your Losses short
7. Hold on to your Winning Positions until Classic Sell Signals tell you to unload your Positions

Never Predict The Market

Forex trading is a damn risky business. Many people have went from millionaires to homeless in less than days trading the markets. And this week, aside from upping my equity to another 13.06%, I learned that it pays to be calm and collected when your trades goes against you. It is a must that you believe that you can not control the market. And you do not own the market. The market does not need anything from you, that is why, you don’t need to expect anything from the it. It is you, who needs money from the market. A place of unlimited wealth. So do not get angry if your trades goes against you. Always remember that you are in this, to get money. Why would you be angry if you lose money?

Many systems and techniques are there for the taking, but I will be bold enough to say that all of these systems DOES NOT WORK 100%. They can not predict market movements, they can not predict when the trend will start, stop or reverse. It has been a perversion of many people to control things and the market is one of those things that they can not control. You may hear alot of conspiracy theories, from your friend stock trader’s stories of why the stock will go up or news flash from your commodity trader friend, but all these are just odds and percentages that your decision might be right or wrong. But still you can not predict it.

Thinking that you can predict the market is all BULL CRAP! Here’s why.

What makes the price go up or go down? If many people buy, certainly, the price will go up. If many people sell / short, the price will go down. Let’s say you are a technical analysts who spends a lof of time drawing trendlines, graphs, fibonacci retracements and then finally you decided you wanted to buy and calls it a day, after drawing the hell out of the graph and make it look like a renaissance painting. Then you woke up the next morning seeing you are down 10%. Why?? Why is it wrong? You continue to ask yourself. “I spent the whole fucking day analyzing this god damn chart!”.

My friend, never fear, all those technical traders forgot to tell is that, not all elements in price action are included in the chart. Elements that can affect the price movement greatly, but are not included in the charts. And I’m here to tell you just that. Why? Because we’re friends.

Price, reacts to supply and demand and is reflected on the price chart. May it be candle stick or bar chart. “Yeah, so what? We already know that!” Well, do you also know when the other investors, traders that are on the sideline, will join the trade? How many of them will go against you? How many traders will get out? Most importantly, how many institutional traders will join in and trade with or against your position.

You can not see all of these in a chart. And you can not control it. So why bother?

5 Things Before Your Start Trading

Before you start trading forex for full time, make sure that you have everything covered. Though, not all people are risk takers and will quit their day job on a whim (like me), you must be prepared on to a new journey of your life. You will look back and if you become successful at this, you’ll realize that its the best decision you’ve made in your life. There’s no better feeling than being your own boss and eating your own kill.

#1  – Money To Keep You Afloat

Save at least 8 months worth of your expenses. Compute all of your expenses per month and then set aside money to pay that expenses for 8 months. This should keep you out of worrying where to get the money to pay for your rent, electricity, water etc. should you take consistent lose on your trading.

#2 – Trading Capital

This is probably will come from a personal preference. But for starters, I’ll try to give a more concrete estimate on how much should your trading capital be. Forget about the trading system for now. Let’s say that your trading system (thru backtesting) produces consistent profits at the rate of 10% per month. And your monthly expenses is let’s say, P20,000 per month. How much funds do you need to produce P20,000 for 10%?

x = TARGET INCOME / % RETURN
x = 20,000 / 0.1
x = 200,000

The answer is P200,000. If you need P20,000 to live with 10% increase per month. You need P200,000 of initial funds. Whatever your target income per month, just use the formula above.

#3 – Money Management System

You also need, and probably the most important thing, to have a money management system. This is not merely how much money should you risk per trade. This is also, how much money should you risk again should you know you are right. And how much money should you take out if you’re right and how much money should you cut off if you’re wrong. There’s a lot of things going on in a money management system, please do a careful research first before trying to broke yourself in trading. Victory loves preparation.

There’s a lot of books in money management. But there’s only one that comes to mind.

Trade Your Way to Financial Freedom

#4 – Trading System

A trading system is a system that will tell you when you will enter and exit the trade. In searching for a system, give more emphasis to the exit strategy than the entry strategy. Why? Because it can either be the profit taking or the cutting of losses in which either case can affect your account and your mental state. Don’t get too hang up on trading strategy, just a simple trading strategy will do. The most important part in your trading is money management and trading psychology.

There’s a lot of books that teaches trading systems. But I guess its up to you on what you will choose. I’ll just refer you to a book about different successful traders of our time so you will know what trading strategies they are using and decide for yourself:

Market Wizards: Interviews with Top Traders

#5 – Trading Psychology

Emotions are the main enemy in trading. That’s why you should learn to control them. Read books about trading psychology to be aware if you’re acting on emotions or rational decisions. There are times when you will suffer consistent winners and consistent losing streaks. Having the mental toughness to overcome that will make you a great trader so never try to skip step and proceed trading without practice. If there is one book I would recommend for this topic, its:

Trading in the Zone

Forex Trading Tip: Invest Before You Trade

I think that the most important thing in trading is to not be attached with money. Once you realized that the money you are throwing away due to bad trades, is money that you need to feed yourself, you become attached to it until trading becomes impossible.

Remember that trading can be tough. Its a mental game. And a lot of decision making involve. It also takes a toll on your mental health. Look at Jesse Livermore. Before you can really say “Fuck You Money!” ignoring its value and not be attached to it, I think you have to invest your money.

But I think, investing has its merits as it gives you more security on your financial future, should you have a lot of losing streaks in trading. Investing gives you residual income.

Investing can be fun for those who likes big big gains over the course of many years. For a trader, it might not be an attractive proposition. You literally have to wait a lot of years for it. But I think, investing has its merits as it gives you more security on your financial future, should you have a lot of losing streaks in trading. Investing gives you residual income. Stock dividends, real estate rental properties and brick and mortar business. It might not be a huge business or huge profit, but over the course of the year, it will compound. Slowly but surely.

Planning your financial future and before getting into forex trading, fix your finances first. Invest a portion of your money to passive income, have an emergency fund and the rest goes as your trading fund. I think that is the best course of action to take.

Just a quick note. If you’re going to invest your money in mutual funds or UITF, I’d rather not put it there. I think its a redundant thing. Mutual fund managers trade with the money you gave them, but you are already trading, you don’t want your investment money to be traded. Not to mention the high fees. You want it to be invested. I think buying the index as an investment is the best way to go.

Forex vs Real Estate

Real estate has been one of the pillars of wealth as most people believe. The popular notion that, “you don’t get to produce more land” usually the selling point to seal the deal and invest in real estate.

I think, real estate is a good investment. But saying that real estate is the only good investment is far from the truth. Real estate for me, has the highest PITA (Pain In The Ass) ratio. There’s a lot of people involved and you need to pay each one and negotiate with each one. If you love talking to lawyers, accountants and marketing people, you’ll love real estate. I have an engineering background so I would love to talk to the engineers and architects that’s involved in the project, other than those people is too much for me.

Once the tenants come in, more headaches come in. Maintenance, repairs, tenants who doesn’t pay rent, tenants who delay payment of rent. For me, life is too short to be stressed out like that.

Is it safe because we are not producing any more land? Remember the housing crash of 2007 – 2009? A lot of companies, banks and investment companies who invested in real estate went bankrupt. What about invasion? China invading Tibet and more land from South East Asia, how safe really is real estate?

It also has the highest capital requirement. And very slow in liquidity. It would take months to buy and sell a real estate property. Managing the property would be time consuming.

Now looking at forex, you can buy and sell currency anywhere in the world. You just need a laptop (or a smartphone) with internet connection. I think this is one of the best benefits of forex. Management of forex portfolio can be a breeze, with tools available for traders, automation and what not, you can be free to spend your time on things you like (i.e. travel). Should invasion from China comes, pack your things and fly to another country, taking your laptop with you and your portfolio is still there.

You can so decide to NOT invest in the country you don’t like. You can liquidate your position any time, instantly, and take advantage of opportunities faster.

I think forex wins hands down. But since this is a forex blog, I am biased. But I hope that you think about this deeply, see the benefits of it all. Some people would like real estate others don’t. I’m one of those people who likes to spend my time on things I want, and managing a real estate portfolio for me, I think, would prevent me from living the life I dream of.