ABOUT ME
I started trading stocks while I was an Assistant Professor of Corporate Finance at University teaching merger, acquisition, corporate take-over, due diligence audit, and public listings. For me, teaching in college was an easy job & lacking challenges, therefore I started involving myself in a corporate venture team, established by a public listed company. I was introduced to two young and brilliant certified accountants, who have extensive background in venture capital & corporate laws, but lacking the knowledge & skills in management & marketing. While working as a team, I learned as much about financial & legal aspects in merger & corporate take-over from these two amazing kids, at the same time, I taught them management & marketing. After three years working with the team, I became an expert in analyzing, acquiring, merging, restructuring & turning around small size company with paid-up capital of $20-100 million. I was then appointed as a team leader, where I have had accessed to all confidential corporate information, and most important, I have had an exclusive contact with CEO, Chairman of the board, and all the board members. One day, at 7pm on Friday, I was alone called by CEO to his office to discuss about subsidiary company that owned 120 retail stores & supermarkets located throughout the country, financially in bad shape, and performing at operating loss. At the meeting, he offered me a job to run the company's operation & to turn it around profitably. I took up the offer with one condition, "I want a final say about hiring & firing", and it was agreeable. My wife & my three little kids were very excited and we were celebrating for couple weeks at ski resort in Aspen, Colorado, and we did have a good time together.
Back to office after vacation for the first day as CEO, I had arranged series of meeting with 350 staffs and big tasks were waiting ahead of me to fulfill the company's goal, to turn it profitable. As CEO, I was tied-up with daily operational decision making & non-stop meetings, ceremonial & none-related functions, and frequent ad-hoc assignments from my boss. In addition, I have my own agendas; to restructure the company, to recruit new staffs & to train them, and to look through at every detail of entire company's policies & operations and to make changes if needed, to establish marketing research unit & data bank, and to kick start new business venture for future expansion. I was desperate to find reliable & capable staff to delegate my tasks, but there were only couple that I can trust. Later, I managed to hire hand-picked of good people, and after six months, I felt more comfortable & fully in control, and things were running smoothly. After second year, the newly restructured company had shown operating profit, and we managed to take-over one company with restaurant chains & food catering base, and another company in building security & maintenance. The company continue to expand & operated profitably, and at the end of forth year, we managed to acquire one company that owned several fast food restaurants, and another service-based company that involve in market research, recruitment, training, placement of human resources. Days went by very fast, I was five years with the company doing the most stressful job I ever had. I look forward for retirement, I did planned ahead, and I retired at the end of eighth year. From that moment until now, I'm trading forex for a living, and I love it so much.
FOREX MARKET AT GLANCE
Forex (foreign exchange currency) market is a huge financial center with daily trading volume exceeding US $5 trillion vs US $22 billion for NYSE. It is just like comparing elephant with cat. There are three major forex trading centers located in New York, Tokyo, and London. Forex market open 24 hours per day, 5 1/2 days per week; opening at 5pm eastern time on Sunday, and closing at 5pm eastern time on Friday. There are eight major currencies trading over the counter; USD, EUR (Euro), GPB (British Pound Sterling), JPY (Japanese Yen), CHF (Swiss Franc), CAD (Canadian Dollar), AUD (Australian Dollar), NZD (New Zealand Dollar); in addition to several minor currencies.
In forex market, the currencies are traded in pair, and currently there are eight major pairs, such as EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD, EUR/JPY; plus several dozens minor pairs. The first currency in the pair is called BASE currency; "EUR/___" and the second currency in the pair is called COUNTER currency; "___/USD". When we BUY (long) or SELL (short) of EUR/USD, we are referring to BASE currency, which is EUR. If we BUY, we want EUR to appreciate, and if we SELL, we want EUR to depreciate. In fact, it even better, if we BUY, we are seeing EUR appreciates and USD depreciates; and if we SELL, we are seeing EUR depreciates and USD appreciates. Over the counter, we buy or sell currencies in lot sizes: 100,000 units for 1.0 standard lot; 10,000 units for 0.1 mini lot; and 1,000 units for 0.01 micro lot. Unit of measurement of differences in value of currencies in a pair is called PIP. One pip is worth $10.00 in standard lot; $1.00 in mini lot; and $0.10 in micro lot.
To start trading forex, we must open up an account with registered brokers which require minimum deposit of US $250 to $2000, for standard, mini, and micro accounts. The brokers normally offer LEVERAGE, which is the money that brokers lend to you for trading activities. The most common leverage in US is 50 to 1; meaning that for every 1 unit you use your own capital, the broker will lend you 50 units. Therefore, for an account of $2000, you can trade up to $100,000 worth of currencies. The most common platform in forex trading is MT4 or META-TRADER 4, and it is user friendly and easy to learn. Which broker to choose? You could look up for forex broker reviews in internet, then call them for more information, and open up DEMO account. If you like it, sign up for micro trading account with minimum leverage, and you can start trading live.
MY JOURNEY
(1) AS A BEGINNER & LOSER TRADER
In an early stage, my journey as a forex trader was a difficult one, just like everybody else, I went through bumpy and rough road all the way until the end of the first stage as a beginner. I felt emotionally distress due to frustration after frustration as a result of non-stop losing, and yet, I didn't really know what to do next. I spent a long hours in trading, but it did not produced an intended result. I had difficulty finding the right direction of price movement, but even when I got it right, I still lost money. To put it in the exact word, it was just like "searching for water in an open desert, and frequently being deceived by mirage, believing there is water in front of me, but actually none". Quite often, I got tired of losing, and I stayed away from trading completely, for days or weeks, then came back with new energy and positive mind. I didn't gave up, simply because I love forex so much, and I believe strongly that, there must be a way to win in forex, and I finally found it after sixteen months. I said to myself repeatedly, "I think, I just got it last week, I just got it".
One meaningful thing you can do is to analyse your losing trades, what did you did wrong, and don't repeat them in future, and to analyse your winning trades, what did you did right, and repeat them in future. Enter the market, only, when you have trading edge, meaning that you have spotted an easy prey, just like hyenas targeting baby buffalo. Focus on couple major pairs, study their history, behavior & character thoroughly, and follow them day & night, then, move on to other pairs. As you know, each pair was created differently, and they are different in term of liquidity; how they move: orderly or abruptly; the distance of each particular movement before making pullback, the tendency of making big swing; the degree of sensitivity to USD or US economy, the level of reaction to the movement of its related pairs; the degree of sensitivity to other country's economy or its currency value as a major trading partner.
At this stage, you need to come up with your own trading method which consist of couple indicators at your choosing, and to start using them consistently, and to refine them as you go. Beside candles formation pattern and support & resistance levels, you just need another indicator to verify the trend. A good trading method will enable you to see clearly, the kind of candles formation pattern that you're looking for, for high-winning-probability entry; and the type of candles formation pattern that you're looking for, to exit for profit. If you were to win, you need a precise signal for entry & exit, and you cannot be guessing. Try to keep your charts simple & clean, and don't get overcrowded with unnecessary indicators that will confuse you in interpreting entry signal.
My biggest problem at an early stage was, "I didn't know or wasn't sure, whether the trend is about to reverse or to continue or to move sideway". Countless times, I followed the wrong trend, simply because I didn't realize the incoming trend reversal, and later, I was trapped by losing trade in opposite direction. To make thing worse, I didn't get rid of bad trades ASAP, and I kept moving my stop losses, thinking that, it will reverse, and finally, I ended up losing 300 pips. After losing badly, I just gave-up & couldn't care less, and I kept jumping around, entering new trades spontaneously without plan, and closing off potentially good trades, and I lost almost all of them. I was disappointed & lost direction, and I stayed away from trading for weeks. Finally, I came up with a drastic solution, and later, it became a turning point for me as a trader.
How did I improved? I just focused solely on PRICE ACTION as translated by CANDLES FORMATION PATTERN, and to forget the rest of other indicators. In my view, this is the most accurate & the most up-to-date indicator as compared to the rest, the lagging indicators. One major benefit of candles reversal pattern, it can signal incoming trend reversal accurately, within 3 daily sessions, which you don't get from other indicators. However, I notice some limitation of price action; (1) it's inaccurate in ranging market; (2) it couldn't tell you of how far it will go in any particular move, therefore, you should check for sign of incoming reversal at key support or resistance level; (3) it's inaccurate in illiquid market (low market interest, or low trading volume, or low level of buying & selling, such as during holiday season); (4) it's inaccurate in volatile market, such as when US's credit rating was being downgraded, or Greece financial turmoil, or Japanese tsunami.
Here what I did that ended up my losing streak
1. I ONLY focused on one pair EUR/USD for 6 months. I studied them, analysed them every single day using 15M, 30M, 1-HR, 4-HR, DAILY, WEEKLY charts. I searched in internet daily to see what people say about eur/usd. I frequently checked USD index & gold price. As you know, if USD index up, eur/usd may go down. If gold up, eur/usd may go up, because gold is ANTI-Dollar.
2.Then, I focused on 3 other pairs: aud/usd, usd/chf, usd/jpy. I studied them thoroughly in and out, and I could tell you where they are moving & stopping, and where the key support & resistance levels are
3. I drew support & resistance levels in daily chart, and I frequently refer to Fibonacci retracement & expansion levels to check for its accuracy. I believe this is the most important indicator & the key factor in deciding entry & exit.
4. I drew the trend line or channel lines in my charts, and I monitor closely when price approaching or breaking trend line or channel lines, because it will alert me for possible new entry or exit for profit or losing trade. When price breaks major trend line in daily or weekly chart, it is a significant signal of trend reversal or continuation major trend.
5. I monitored my position using Daily chart, 4-Hour chart, One-Hour chart, by checking on candles formation pattern AFTER DAILY CANDLE CLOSED. I also used Weekly chart to forecast price movement for the next 2-8 weeks. Lower time frames such as 4-Hour & One-Hour chart will provide a zoom-in picture of an early initial move that can alert me of any deviation from the current trend. I frequently referred to One-Hour Chart in final moment before entry, re-entry, and exit.
6. I studied by hard all the formation of candles reversal patterns, such as pin bar, high wave, bullish & bearish engulfing, morning star, evening star, bullish & bearish harami (inside bar), piercing pattern, dark cloud cover, tweezer top & bottom. As I became skillful, I entered my position early, right after the 2nd or 3rd candle confirmation. As a rule of thumb, whenever I am unsure, I don't get in, and just wait for another candle for confirmation. For your information, candles formation patterns only valid, if it is used in combination with key support & resistance levels.
7. I did back-testing & forward-testing to make sure that my indicators were working as intended in daily time-frame. You could use a special software, but the easiest way to do it is by using manual & visual testing. How to do it? Open your Daily chart, look for at least 20 examples in previous trading activities that you can apply your strategies. Then, downgrade your chart to One-hour time frame to see if the same indicators are working in lower time-frame. Next, apply your indicators in live micro-account for forward testing, to see if your strategies are working as well in desired time-frame. Let's me tell you this, if the strategies did not make money in the past trading activities (back-testing), then, most likely it won't in future. Finally, you could calculate the percentage of Drawdawn, i.e. the reduction in your capital, in percentage form, after series of losing trades, let's say 15%. In real sense, if the drawdown in your recent trades reaching that level, then, it will definitely need a review.
The most important skill that I had acquired was, my ability to read & to interpret candles reversal patterns, which enable me to spot the right set-up, for an accurate entry, and to the right direction. Please take note, don't over-analyzed the market, and I can tell, you will lose if you do that. Trading is an easy task, don't complicate them, keep it simple, and take action base on what you see.
One sure thing, there is nobody really able to help you to success in forex, except you, yourself, so just regard the assistance from others as a bonus. I wouldn't want to suggest you to look for a mentor, even though you may need one, simply because too many questionable mentors around & they will charge you with unbelievable price, just be careful. For me, the most valuable piece of help were my trading experience, and my emotional strength, after I went through countless losing & winning trades for the past sixteen months. In addition, new information & knowledge which I acquired from reading books, e-books and articles was also useful to assist me sharpening my trading skills, and to help me viewing the trading process in wider & broader perspective.
One thing I will say, "the market is your best teacher ever, it will teach you anything you want to know, and it will make you learn your lessons well, so that you won't forget".
I lost, when I did the following, and don't repeat them:
*I entered the market spontaneously without plan, I lost
*I tried to pick the top & bottom, I lost
*I moved my stop loss, I lost badly
*I don't wait until candle closes to enter the market, I lost or won small profit
*I used robot or automatic trading, I lost
*I chased the trade during US Non- Farm Payroll releases, I lost
*I traded too many pairs, I lost
*I analysed too much, I got confused, I lost
*I listened too much news & expert analysis, I was overwhelmed, I lost
*I used too many indicators, I became confused, and I lost
*I over-traded, I was exhausted, and I lost
*I traded in opposite market trend, I lost
*I didn't got rid of bad trades asap, I lost badly
*I ignored key support & resistance, I lost in false break-out
*I didn't exit for profit as I supposed to, I lost or I won small profit
*I used max leverage & used up my capital to the max, I lost my pant, 2 of my accounts were closed, I quit trading for couple months.
"Taking excessive risk in trading is just like driving you car over 100 miles per hour, it is just a matter time before accident to occur"
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(2) AS AN AMATEUR & BREAK EVEN TRADER
At this stage, I was able to predict the price movement about 70-80% accuracy, but I didn't have patience & gut to wait a little longer to let the trade progressing. Many times, whenever I closed the trade, due to stalling move, it went back up, and I lost profitable trading opportunities. Another times, I exited my position way too soon while the trend was still in play. End result, I won more trades and lost some, but my profit wasn't big enough as it supposed to be, it was break even.
To get passed this stage was another challenge, and it was very much related to self-discipline, like taking low-winning-probability set-up, just to capture trade opportunity; and letting bad trades progressing & hurting my profit, simply because of refusing to accept losses. Here & there, I still made mistakes by misreading the candle signal, which caused me bad trades. Actually, I supposed to wait for another candle confirmation signal, if I wasn't sure, but I didn't. All those issues, as I identified, were the main obstacles for me to get passed the break-even point. In order to move on to the next level, I just couldn't afford to absorb any single big loss that can upset my profit. One thing I can tell you, as long as you know that you have problems, and you're taking steps to fix them, you are on the right track toward your goal.
As for this moment, I started analyzing about 10 pairs everyday, and after 6 months of doing continuous analysis, I basically notice of the incoming trend reversal, and the likely trend direction of each individual pair. I could see clearly, the step-by-step formation of candles reversal pattern, which later became my intended set-up for entry. I chose the best two set-up for entry, based on the probability of winning, and the risk & reward ratio. Most of the times, I traded major pairs that I'm familiar with, such as eur/usd, gbp/usd, usd/jpy, usd/chf, usd/cad, aud/usd, nzd/usd, eur/jpy, chf/jpy, aud/nzd, and I know them very well. My favorite pairs are eur/usd, usd/chf, eur/jpy, and they are gentle, less volatile, and predictable.
One important thing, if you were to observe in certain pairs, you could find a "massive support & resistance zone", probably 150-250 pips wide, whereby, the price is ranging up & down, within this area. You could expect, either, a continuing ranging move, or a breaking-out to the upside or downward, so don't get caught into a false break-out. Normally, I will take my profit out upon entering this zone, wait for candles confirmation signal, then, follow the direction. At the same time, I will watch for the signs of breaking-out move, like a slow grinding to the upside or downside, and proceed with caution.
Another, it is about temporary counter-trend price movement. Many times, I did observed the price moved 150-250 pips away, deviating from the long-term trend path, then reversed back to follow the original trend. Even though it was a temporary move, but enough to cause an alarming worry & nervous to traders. My advice, take your profit out, wait for the reversal candles signal, and follow the new counter-trend-move if you feel comfortable, otherwise, stay in sideline. Normally, the counter-trend-move occurs at key support & resistance levels.
Next, I will talk about key support & resistance level, which I also call, "the front door to the house". I couldn't stress much more about the importance of key support & resistance levels, and as you notice, almost all trend reversal or counter-trend-move occurred at this juncture.
About key support & resistance level : "Please pay attention, this is very important"
1. Price will react to key support & resistance levels
2. Most traders will wait for a bounce at key support level to enter new position for continuation of up-trend move.
3. Most traders will wait for a bounce at key resistance level to enter new position for continuation of down-trend move.
4. Most traders will wait at key support or resistance level to see if the price closes below or above that level, in order to confirm for the next move.
5. Key support & resistance level may create a false break, so, just be careful, don't make mistake by entering your position in the wrong trend direction, because you can easily being misled to the wrong path.
6. Most traders will wait at key support & resistance levels for clues of incoming trend reversal, which normally will occur in several daily sessions, and you could see a stalling move due to waiting for confirmation signal.
7. Most traders will wait at key support & resistance levels for a counter-trend-move (temporary move to opposite direction)
8. Most traders will take profit out at key support & resistance levels.
9. Most traders will exit of losing trades at key support & resistance levels
So many important events taking place at this particular juncture, I just couldn't believe if you choose to ignore them. To tell you the truth, I have had pretty good trading method, it is simple & accurate, and my entry signal rarely missed the intended target. There is no secret, the core to my trading method are candles reversal patterns and key support & resistance levels. The only problem, sometimes I got nervous when I saw my trades went to opposite direction, or stalling for a week, but it was just a temporary movement. At time, I wasn't brave enough to take the trade in counter-trend-move, even though the candles signal pointing to that direction.
Traders' Dilemma
1. "I will lose trade opportunity if I don't enter now"
Plenty of trade opportunities will come & go, you won't lose anything. You just need to wait for high winning probability price set-up.
2. "I may lose some additional pips if I exit for profit now"
You need to take your profit at key support & resistance level, grasp whatever you can get right now, and secure them.
3. "I refuse to get rid of bad trades, because thing may go back in my way"
If the price passes major support or resistance level, and holding there, you just need to stop the bleeding, and exit at pullback.
4. "This is the best set-up I've ever seen, I"ll go all out"
Don't overly confidence, things can go wrong, and nothing is perfect. Enter a small lot & add up later, and watch your risk management.
I won, when I did the following, and do repeat them:
* I traded daily chart, holding my position for hours, days, or weeks, I won
* I never scared of losing & I took calculated risk, and I won
* I waited for daily candle to close before entry, I won
* I used (1: 2) risk & reward ratio, I won
* I exited for profit taking at support & resistance level, I won
* I never touched my positions, as long as they are moving to the right direction, I won
* I added up my lot size as the trade progressing & profitable, I won
* I exited my positions, when I see early signal of exhausted trend & incoming reversal, I won
* I used entry signal of "daily" candles reversal pattern at support & resistance zone, I won
* I entered at pullback, at key support level in up-trend move, I won
* I entered at pullback, at key resistance level in down-trend move, I won
* I added up my positions as the trend progressing, I won handsomely
* I analysed about 10 pairs on daily basis, watched them continuously for months, even years, and traded one or two with the best set-up & risk-reward ratio, I won
As we move on, it is good to hear of what Warren Buffett has to say about trading. In order to win in the market, you have to follow two rules; rule one: "don't lose money in the market", and rule two: "don't forget rule one, not to lose money in the market".
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(3) AS A PROFESSIONAL & WINNER TRADER
This is the most exciting moment, I feel very confidence with my trading ability, and I have a precise trading method that can generate an accurate entry & exit signal. I know for certain, when to enter, when to exit, when to hold my position, and when to stay in side line. As a matter of fact, timing & patience are important factors that will separate between the winner & loser. At any particular moment, I understand what's going on in the market, and how to respond appropriately. I can read the mind of majority traders and I often board the same train with them. Those I mentioned, are the most basic knowledge & skills that you need to master in order to win consistently. Regardless of your background or level of education, those knowledge & skills can be acquired and learned through continuous live trading exposure, and you don't need college degree to become a forex trader.
Frankly speaking, I can tell you anything you want to know about trading, and how to win them. But, when come to executing your trades, you are alone to make your own judgement call before pulling the trigger. Whether or not you'll make the right decision, is the one that make a difference between winning and losing. However, with continuous practice, you'll reach maturity & perfection day by day. If you have the desire, you'll get there, I have no doubt at all, in fact, you'll be surprise seeing yourself reaching that level.
On daily basis, I manage my trading activities just like running a small company, whereby the profit & loss is an important matter for company's survival. Performance wise, in some weeks, I made a good profit, another week, I made a few or break-even or a small loss, but over the long run, I made pretty much a consistent profit, that enable my accounts to grow day-by-day.
Let's me tell you something, trading forex can be boring to some people, because, it's not like action movie with scenes of dramatic episodes as some people may think. It is a job, and it involves a lot of waiting after waiting in order to get to the right price set-up for winning entry, and to get to exit line for take-profit goal. Therefore, you need patience after patience if you were to win. Routinely, I spend couple hours doing assessment before New York opens, and another couple hours after New York closes, and I usually enter my positions couple hours after Tokyo opens. Frequently, I check my positions at noon time up here, right before Europe closes.
As usual, I spent time on reading, researching, and testing indicators to perfect my trading method. I did some teaching, because I believe, "teaching is an important part of learning, the more you teach, the more you will learn".
Everyday, I spend a great deal of time developing trading software, and studying the correlation between currency prices and DOW, S&P 500 futures, bond yields, gold & oil prices, and USD index. I always have an ambition to write a book about currency trading, I hope I will come up with one in couple years. My area of interest is about forecasting price movement by using Elliott Wave Theory & Fibonacci. Frankly speaking, I do believe that, "forex puzzle" can actually be solved by mathematics.
At this moment, I'm pretty much enjoying life, going for sight seeing, walking by the beach & birds watching, cycling, shooting, singing, watching boxing title fights, attending major tennis tournaments, visiting family & friends, meeting new friends........after all, life is too short.
Important points
* Key support & resistance levels
* Candles reversal patterns:
* Pin bar
* High wave
* Inside bar (bullish & bearish harami)
* Tweezer top & bottom
* Morning star
* Evening star
* Bullish & bearish engulfing
* Piercing pattern
* Dark cloud cover
* Massive support & resistance zone
* Counter-trend-price movement
* Ranging zone
* Developing precise trading method, and generating accurate entry & exit signal
* Entering position at high probability price set-up
* Regular exit for profit at key support & resistance levels
* Staying in side line when there is no trade
* False break, don't being misled to the wrong trend direction
* Focus on couple major pairs, then move on to other pairs
* Self discipline & risk management
* Monitoring your trade using Daily, 4-Hour, One-Hour, Weekly charts
"You can't be guessing if you were to win, and you need a precise trading method that can generate an accurate signal for entry & exit consistently"
I started trading stocks while I was an Assistant Professor of Corporate Finance at University teaching merger, acquisition, corporate take-over, due diligence audit, and public listings. For me, teaching in college was an easy job & lacking challenges, therefore I started involving myself in a corporate venture team, established by a public listed company. I was introduced to two young and brilliant certified accountants, who have extensive background in venture capital & corporate laws, but lacking the knowledge & skills in management & marketing. While working as a team, I learned as much about financial & legal aspects in merger & corporate take-over from these two amazing kids, at the same time, I taught them management & marketing. After three years working with the team, I became an expert in analyzing, acquiring, merging, restructuring & turning around small size company with paid-up capital of $20-100 million. I was then appointed as a team leader, where I have had accessed to all confidential corporate information, and most important, I have had an exclusive contact with CEO, Chairman of the board, and all the board members. One day, at 7pm on Friday, I was alone called by CEO to his office to discuss about subsidiary company that owned 120 retail stores & supermarkets located throughout the country, financially in bad shape, and performing at operating loss. At the meeting, he offered me a job to run the company's operation & to turn it around profitably. I took up the offer with one condition, "I want a final say about hiring & firing", and it was agreeable. My wife & my three little kids were very excited and we were celebrating for couple weeks at ski resort in Aspen, Colorado, and we did have a good time together.
Back to office after vacation for the first day as CEO, I had arranged series of meeting with 350 staffs and big tasks were waiting ahead of me to fulfill the company's goal, to turn it profitable. As CEO, I was tied-up with daily operational decision making & non-stop meetings, ceremonial & none-related functions, and frequent ad-hoc assignments from my boss. In addition, I have my own agendas; to restructure the company, to recruit new staffs & to train them, and to look through at every detail of entire company's policies & operations and to make changes if needed, to establish marketing research unit & data bank, and to kick start new business venture for future expansion. I was desperate to find reliable & capable staff to delegate my tasks, but there were only couple that I can trust. Later, I managed to hire hand-picked of good people, and after six months, I felt more comfortable & fully in control, and things were running smoothly. After second year, the newly restructured company had shown operating profit, and we managed to take-over one company with restaurant chains & food catering base, and another company in building security & maintenance. The company continue to expand & operated profitably, and at the end of forth year, we managed to acquire one company that owned several fast food restaurants, and another service-based company that involve in market research, recruitment, training, placement of human resources. Days went by very fast, I was five years with the company doing the most stressful job I ever had. I look forward for retirement, I did planned ahead, and I retired at the end of eighth year. From that moment until now, I'm trading forex for a living, and I love it so much.
FOREX MARKET AT GLANCE
Forex (foreign exchange currency) market is a huge financial center with daily trading volume exceeding US $5 trillion vs US $22 billion for NYSE. It is just like comparing elephant with cat. There are three major forex trading centers located in New York, Tokyo, and London. Forex market open 24 hours per day, 5 1/2 days per week; opening at 5pm eastern time on Sunday, and closing at 5pm eastern time on Friday. There are eight major currencies trading over the counter; USD, EUR (Euro), GPB (British Pound Sterling), JPY (Japanese Yen), CHF (Swiss Franc), CAD (Canadian Dollar), AUD (Australian Dollar), NZD (New Zealand Dollar); in addition to several minor currencies.
In forex market, the currencies are traded in pair, and currently there are eight major pairs, such as EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD, EUR/JPY; plus several dozens minor pairs. The first currency in the pair is called BASE currency; "EUR/___" and the second currency in the pair is called COUNTER currency; "___/USD". When we BUY (long) or SELL (short) of EUR/USD, we are referring to BASE currency, which is EUR. If we BUY, we want EUR to appreciate, and if we SELL, we want EUR to depreciate. In fact, it even better, if we BUY, we are seeing EUR appreciates and USD depreciates; and if we SELL, we are seeing EUR depreciates and USD appreciates. Over the counter, we buy or sell currencies in lot sizes: 100,000 units for 1.0 standard lot; 10,000 units for 0.1 mini lot; and 1,000 units for 0.01 micro lot. Unit of measurement of differences in value of currencies in a pair is called PIP. One pip is worth $10.00 in standard lot; $1.00 in mini lot; and $0.10 in micro lot.
To start trading forex, we must open up an account with registered brokers which require minimum deposit of US $250 to $2000, for standard, mini, and micro accounts. The brokers normally offer LEVERAGE, which is the money that brokers lend to you for trading activities. The most common leverage in US is 50 to 1; meaning that for every 1 unit you use your own capital, the broker will lend you 50 units. Therefore, for an account of $2000, you can trade up to $100,000 worth of currencies. The most common platform in forex trading is MT4 or META-TRADER 4, and it is user friendly and easy to learn. Which broker to choose? You could look up for forex broker reviews in internet, then call them for more information, and open up DEMO account. If you like it, sign up for micro trading account with minimum leverage, and you can start trading live.
MY JOURNEY
(1) AS A BEGINNER & LOSER TRADER
In an early stage, my journey as a forex trader was a difficult one, just like everybody else, I went through bumpy and rough road all the way until the end of the first stage as a beginner. I felt emotionally distress due to frustration after frustration as a result of non-stop losing, and yet, I didn't really know what to do next. I spent a long hours in trading, but it did not produced an intended result. I had difficulty finding the right direction of price movement, but even when I got it right, I still lost money. To put it in the exact word, it was just like "searching for water in an open desert, and frequently being deceived by mirage, believing there is water in front of me, but actually none". Quite often, I got tired of losing, and I stayed away from trading completely, for days or weeks, then came back with new energy and positive mind. I didn't gave up, simply because I love forex so much, and I believe strongly that, there must be a way to win in forex, and I finally found it after sixteen months. I said to myself repeatedly, "I think, I just got it last week, I just got it".
One meaningful thing you can do is to analyse your losing trades, what did you did wrong, and don't repeat them in future, and to analyse your winning trades, what did you did right, and repeat them in future. Enter the market, only, when you have trading edge, meaning that you have spotted an easy prey, just like hyenas targeting baby buffalo. Focus on couple major pairs, study their history, behavior & character thoroughly, and follow them day & night, then, move on to other pairs. As you know, each pair was created differently, and they are different in term of liquidity; how they move: orderly or abruptly; the distance of each particular movement before making pullback, the tendency of making big swing; the degree of sensitivity to USD or US economy, the level of reaction to the movement of its related pairs; the degree of sensitivity to other country's economy or its currency value as a major trading partner.
At this stage, you need to come up with your own trading method which consist of couple indicators at your choosing, and to start using them consistently, and to refine them as you go. Beside candles formation pattern and support & resistance levels, you just need another indicator to verify the trend. A good trading method will enable you to see clearly, the kind of candles formation pattern that you're looking for, for high-winning-probability entry; and the type of candles formation pattern that you're looking for, to exit for profit. If you were to win, you need a precise signal for entry & exit, and you cannot be guessing. Try to keep your charts simple & clean, and don't get overcrowded with unnecessary indicators that will confuse you in interpreting entry signal.
My biggest problem at an early stage was, "I didn't know or wasn't sure, whether the trend is about to reverse or to continue or to move sideway". Countless times, I followed the wrong trend, simply because I didn't realize the incoming trend reversal, and later, I was trapped by losing trade in opposite direction. To make thing worse, I didn't get rid of bad trades ASAP, and I kept moving my stop losses, thinking that, it will reverse, and finally, I ended up losing 300 pips. After losing badly, I just gave-up & couldn't care less, and I kept jumping around, entering new trades spontaneously without plan, and closing off potentially good trades, and I lost almost all of them. I was disappointed & lost direction, and I stayed away from trading for weeks. Finally, I came up with a drastic solution, and later, it became a turning point for me as a trader.
How did I improved? I just focused solely on PRICE ACTION as translated by CANDLES FORMATION PATTERN, and to forget the rest of other indicators. In my view, this is the most accurate & the most up-to-date indicator as compared to the rest, the lagging indicators. One major benefit of candles reversal pattern, it can signal incoming trend reversal accurately, within 3 daily sessions, which you don't get from other indicators. However, I notice some limitation of price action; (1) it's inaccurate in ranging market; (2) it couldn't tell you of how far it will go in any particular move, therefore, you should check for sign of incoming reversal at key support or resistance level; (3) it's inaccurate in illiquid market (low market interest, or low trading volume, or low level of buying & selling, such as during holiday season); (4) it's inaccurate in volatile market, such as when US's credit rating was being downgraded, or Greece financial turmoil, or Japanese tsunami.
Here what I did that ended up my losing streak
1. I ONLY focused on one pair EUR/USD for 6 months. I studied them, analysed them every single day using 15M, 30M, 1-HR, 4-HR, DAILY, WEEKLY charts. I searched in internet daily to see what people say about eur/usd. I frequently checked USD index & gold price. As you know, if USD index up, eur/usd may go down. If gold up, eur/usd may go up, because gold is ANTI-Dollar.
2.Then, I focused on 3 other pairs: aud/usd, usd/chf, usd/jpy. I studied them thoroughly in and out, and I could tell you where they are moving & stopping, and where the key support & resistance levels are
3. I drew support & resistance levels in daily chart, and I frequently refer to Fibonacci retracement & expansion levels to check for its accuracy. I believe this is the most important indicator & the key factor in deciding entry & exit.
4. I drew the trend line or channel lines in my charts, and I monitor closely when price approaching or breaking trend line or channel lines, because it will alert me for possible new entry or exit for profit or losing trade. When price breaks major trend line in daily or weekly chart, it is a significant signal of trend reversal or continuation major trend.
5. I monitored my position using Daily chart, 4-Hour chart, One-Hour chart, by checking on candles formation pattern AFTER DAILY CANDLE CLOSED. I also used Weekly chart to forecast price movement for the next 2-8 weeks. Lower time frames such as 4-Hour & One-Hour chart will provide a zoom-in picture of an early initial move that can alert me of any deviation from the current trend. I frequently referred to One-Hour Chart in final moment before entry, re-entry, and exit.
6. I studied by hard all the formation of candles reversal patterns, such as pin bar, high wave, bullish & bearish engulfing, morning star, evening star, bullish & bearish harami (inside bar), piercing pattern, dark cloud cover, tweezer top & bottom. As I became skillful, I entered my position early, right after the 2nd or 3rd candle confirmation. As a rule of thumb, whenever I am unsure, I don't get in, and just wait for another candle for confirmation. For your information, candles formation patterns only valid, if it is used in combination with key support & resistance levels.
7. I did back-testing & forward-testing to make sure that my indicators were working as intended in daily time-frame. You could use a special software, but the easiest way to do it is by using manual & visual testing. How to do it? Open your Daily chart, look for at least 20 examples in previous trading activities that you can apply your strategies. Then, downgrade your chart to One-hour time frame to see if the same indicators are working in lower time-frame. Next, apply your indicators in live micro-account for forward testing, to see if your strategies are working as well in desired time-frame. Let's me tell you this, if the strategies did not make money in the past trading activities (back-testing), then, most likely it won't in future. Finally, you could calculate the percentage of Drawdawn, i.e. the reduction in your capital, in percentage form, after series of losing trades, let's say 15%. In real sense, if the drawdown in your recent trades reaching that level, then, it will definitely need a review.
The most important skill that I had acquired was, my ability to read & to interpret candles reversal patterns, which enable me to spot the right set-up, for an accurate entry, and to the right direction. Please take note, don't over-analyzed the market, and I can tell, you will lose if you do that. Trading is an easy task, don't complicate them, keep it simple, and take action base on what you see.
One sure thing, there is nobody really able to help you to success in forex, except you, yourself, so just regard the assistance from others as a bonus. I wouldn't want to suggest you to look for a mentor, even though you may need one, simply because too many questionable mentors around & they will charge you with unbelievable price, just be careful. For me, the most valuable piece of help were my trading experience, and my emotional strength, after I went through countless losing & winning trades for the past sixteen months. In addition, new information & knowledge which I acquired from reading books, e-books and articles was also useful to assist me sharpening my trading skills, and to help me viewing the trading process in wider & broader perspective.
One thing I will say, "the market is your best teacher ever, it will teach you anything you want to know, and it will make you learn your lessons well, so that you won't forget".
I lost, when I did the following, and don't repeat them:
*I entered the market spontaneously without plan, I lost
*I tried to pick the top & bottom, I lost
*I moved my stop loss, I lost badly
*I don't wait until candle closes to enter the market, I lost or won small profit
*I used robot or automatic trading, I lost
*I chased the trade during US Non- Farm Payroll releases, I lost
*I traded too many pairs, I lost
*I analysed too much, I got confused, I lost
*I listened too much news & expert analysis, I was overwhelmed, I lost
*I used too many indicators, I became confused, and I lost
*I over-traded, I was exhausted, and I lost
*I traded in opposite market trend, I lost
*I didn't got rid of bad trades asap, I lost badly
*I ignored key support & resistance, I lost in false break-out
*I didn't exit for profit as I supposed to, I lost or I won small profit
*I used max leverage & used up my capital to the max, I lost my pant, 2 of my accounts were closed, I quit trading for couple months.
"Taking excessive risk in trading is just like driving you car over 100 miles per hour, it is just a matter time before accident to occur"
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(2) AS AN AMATEUR & BREAK EVEN TRADER
At this stage, I was able to predict the price movement about 70-80% accuracy, but I didn't have patience & gut to wait a little longer to let the trade progressing. Many times, whenever I closed the trade, due to stalling move, it went back up, and I lost profitable trading opportunities. Another times, I exited my position way too soon while the trend was still in play. End result, I won more trades and lost some, but my profit wasn't big enough as it supposed to be, it was break even.
To get passed this stage was another challenge, and it was very much related to self-discipline, like taking low-winning-probability set-up, just to capture trade opportunity; and letting bad trades progressing & hurting my profit, simply because of refusing to accept losses. Here & there, I still made mistakes by misreading the candle signal, which caused me bad trades. Actually, I supposed to wait for another candle confirmation signal, if I wasn't sure, but I didn't. All those issues, as I identified, were the main obstacles for me to get passed the break-even point. In order to move on to the next level, I just couldn't afford to absorb any single big loss that can upset my profit. One thing I can tell you, as long as you know that you have problems, and you're taking steps to fix them, you are on the right track toward your goal.
As for this moment, I started analyzing about 10 pairs everyday, and after 6 months of doing continuous analysis, I basically notice of the incoming trend reversal, and the likely trend direction of each individual pair. I could see clearly, the step-by-step formation of candles reversal pattern, which later became my intended set-up for entry. I chose the best two set-up for entry, based on the probability of winning, and the risk & reward ratio. Most of the times, I traded major pairs that I'm familiar with, such as eur/usd, gbp/usd, usd/jpy, usd/chf, usd/cad, aud/usd, nzd/usd, eur/jpy, chf/jpy, aud/nzd, and I know them very well. My favorite pairs are eur/usd, usd/chf, eur/jpy, and they are gentle, less volatile, and predictable.
One important thing, if you were to observe in certain pairs, you could find a "massive support & resistance zone", probably 150-250 pips wide, whereby, the price is ranging up & down, within this area. You could expect, either, a continuing ranging move, or a breaking-out to the upside or downward, so don't get caught into a false break-out. Normally, I will take my profit out upon entering this zone, wait for candles confirmation signal, then, follow the direction. At the same time, I will watch for the signs of breaking-out move, like a slow grinding to the upside or downside, and proceed with caution.
Another, it is about temporary counter-trend price movement. Many times, I did observed the price moved 150-250 pips away, deviating from the long-term trend path, then reversed back to follow the original trend. Even though it was a temporary move, but enough to cause an alarming worry & nervous to traders. My advice, take your profit out, wait for the reversal candles signal, and follow the new counter-trend-move if you feel comfortable, otherwise, stay in sideline. Normally, the counter-trend-move occurs at key support & resistance levels.
Next, I will talk about key support & resistance level, which I also call, "the front door to the house". I couldn't stress much more about the importance of key support & resistance levels, and as you notice, almost all trend reversal or counter-trend-move occurred at this juncture.
About key support & resistance level : "Please pay attention, this is very important"
1. Price will react to key support & resistance levels
2. Most traders will wait for a bounce at key support level to enter new position for continuation of up-trend move.
3. Most traders will wait for a bounce at key resistance level to enter new position for continuation of down-trend move.
4. Most traders will wait at key support or resistance level to see if the price closes below or above that level, in order to confirm for the next move.
5. Key support & resistance level may create a false break, so, just be careful, don't make mistake by entering your position in the wrong trend direction, because you can easily being misled to the wrong path.
6. Most traders will wait at key support & resistance levels for clues of incoming trend reversal, which normally will occur in several daily sessions, and you could see a stalling move due to waiting for confirmation signal.
7. Most traders will wait at key support & resistance levels for a counter-trend-move (temporary move to opposite direction)
8. Most traders will take profit out at key support & resistance levels.
9. Most traders will exit of losing trades at key support & resistance levels
So many important events taking place at this particular juncture, I just couldn't believe if you choose to ignore them. To tell you the truth, I have had pretty good trading method, it is simple & accurate, and my entry signal rarely missed the intended target. There is no secret, the core to my trading method are candles reversal patterns and key support & resistance levels. The only problem, sometimes I got nervous when I saw my trades went to opposite direction, or stalling for a week, but it was just a temporary movement. At time, I wasn't brave enough to take the trade in counter-trend-move, even though the candles signal pointing to that direction.
Traders' Dilemma
1. "I will lose trade opportunity if I don't enter now"
Plenty of trade opportunities will come & go, you won't lose anything. You just need to wait for high winning probability price set-up.
2. "I may lose some additional pips if I exit for profit now"
You need to take your profit at key support & resistance level, grasp whatever you can get right now, and secure them.
3. "I refuse to get rid of bad trades, because thing may go back in my way"
If the price passes major support or resistance level, and holding there, you just need to stop the bleeding, and exit at pullback.
4. "This is the best set-up I've ever seen, I"ll go all out"
Don't overly confidence, things can go wrong, and nothing is perfect. Enter a small lot & add up later, and watch your risk management.
I won, when I did the following, and do repeat them:
* I traded daily chart, holding my position for hours, days, or weeks, I won
* I never scared of losing & I took calculated risk, and I won
* I waited for daily candle to close before entry, I won
* I used (1: 2) risk & reward ratio, I won
* I exited for profit taking at support & resistance level, I won
* I never touched my positions, as long as they are moving to the right direction, I won
* I added up my lot size as the trade progressing & profitable, I won
* I exited my positions, when I see early signal of exhausted trend & incoming reversal, I won
* I used entry signal of "daily" candles reversal pattern at support & resistance zone, I won
* I entered at pullback, at key support level in up-trend move, I won
* I entered at pullback, at key resistance level in down-trend move, I won
* I added up my positions as the trend progressing, I won handsomely
* I analysed about 10 pairs on daily basis, watched them continuously for months, even years, and traded one or two with the best set-up & risk-reward ratio, I won
As we move on, it is good to hear of what Warren Buffett has to say about trading. In order to win in the market, you have to follow two rules; rule one: "don't lose money in the market", and rule two: "don't forget rule one, not to lose money in the market".
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(3) AS A PROFESSIONAL & WINNER TRADER
This is the most exciting moment, I feel very confidence with my trading ability, and I have a precise trading method that can generate an accurate entry & exit signal. I know for certain, when to enter, when to exit, when to hold my position, and when to stay in side line. As a matter of fact, timing & patience are important factors that will separate between the winner & loser. At any particular moment, I understand what's going on in the market, and how to respond appropriately. I can read the mind of majority traders and I often board the same train with them. Those I mentioned, are the most basic knowledge & skills that you need to master in order to win consistently. Regardless of your background or level of education, those knowledge & skills can be acquired and learned through continuous live trading exposure, and you don't need college degree to become a forex trader.
Frankly speaking, I can tell you anything you want to know about trading, and how to win them. But, when come to executing your trades, you are alone to make your own judgement call before pulling the trigger. Whether or not you'll make the right decision, is the one that make a difference between winning and losing. However, with continuous practice, you'll reach maturity & perfection day by day. If you have the desire, you'll get there, I have no doubt at all, in fact, you'll be surprise seeing yourself reaching that level.
On daily basis, I manage my trading activities just like running a small company, whereby the profit & loss is an important matter for company's survival. Performance wise, in some weeks, I made a good profit, another week, I made a few or break-even or a small loss, but over the long run, I made pretty much a consistent profit, that enable my accounts to grow day-by-day.
Let's me tell you something, trading forex can be boring to some people, because, it's not like action movie with scenes of dramatic episodes as some people may think. It is a job, and it involves a lot of waiting after waiting in order to get to the right price set-up for winning entry, and to get to exit line for take-profit goal. Therefore, you need patience after patience if you were to win. Routinely, I spend couple hours doing assessment before New York opens, and another couple hours after New York closes, and I usually enter my positions couple hours after Tokyo opens. Frequently, I check my positions at noon time up here, right before Europe closes.
As usual, I spent time on reading, researching, and testing indicators to perfect my trading method. I did some teaching, because I believe, "teaching is an important part of learning, the more you teach, the more you will learn".
Everyday, I spend a great deal of time developing trading software, and studying the correlation between currency prices and DOW, S&P 500 futures, bond yields, gold & oil prices, and USD index. I always have an ambition to write a book about currency trading, I hope I will come up with one in couple years. My area of interest is about forecasting price movement by using Elliott Wave Theory & Fibonacci. Frankly speaking, I do believe that, "forex puzzle" can actually be solved by mathematics.
At this moment, I'm pretty much enjoying life, going for sight seeing, walking by the beach & birds watching, cycling, shooting, singing, watching boxing title fights, attending major tennis tournaments, visiting family & friends, meeting new friends........after all, life is too short.
Important points
* Key support & resistance levels
* Candles reversal patterns:
* Pin bar
* High wave
* Inside bar (bullish & bearish harami)
* Tweezer top & bottom
* Morning star
* Evening star
* Bullish & bearish engulfing
* Piercing pattern
* Dark cloud cover
* Massive support & resistance zone
* Counter-trend-price movement
* Ranging zone
* Developing precise trading method, and generating accurate entry & exit signal
* Entering position at high probability price set-up
* Regular exit for profit at key support & resistance levels
* Staying in side line when there is no trade
* False break, don't being misled to the wrong trend direction
* Focus on couple major pairs, then move on to other pairs
* Self discipline & risk management
* Monitoring your trade using Daily, 4-Hour, One-Hour, Weekly charts
"You can't be guessing if you were to win, and you need a precise trading method that can generate an accurate signal for entry & exit consistently"
Thanks For Sharing A Trading Tips, How To Trade IN Share Market... Thanks For Sharing Such A Nice Article..
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