ForexSpirit

Trading can be a total roller coaster at times. The unrelenting risk-on that has unfolded all of October being a case in point. Try as I might, I just couldn’t put my head into full-on Euro bull mode. In the end that has cost me.

In EUR/USD it meant I missed out on the opportunity of having any long legs active. For the first 10 days of October I did actually place a few cautious long entries, all of which got stopped out at BE. After the trend channel breakout on October 10 I just couldn’t get my head around going long yet. Nothing was sorted out as far as a comprehensive solution to Greece or the European banks. According to ForexLive the majority of the whole move up is just short covering. Everyone was short up the hilt and even the possibility of a big step towards a solution was enough for everyone to pull the plug on their shorts, thus causing a cascading effect where the market just rampaged north.

In other currency pairs, ones that I don’t have as much of an intimate knowledge of, I paid too much for the chance of participating.

Even though I didn’t profit from the big run-up in EUR/USD I was conservative enough to only have a drawdown of 227 pips (150 of which come from 3 failed short top picking attempts Wednesday and Thursday; see, still only looking for shorts!). On the other hand, I’m not at all happy about my performance in other currencies, where I left dud trades on too long and had to cut my losses.

As much as September showed how much potential the millepede method has when you get to ride a trend, this month showcased that when I miss the reversal of a trend I’m not able to switch my conviction definitively and that spreading my trades over too many pairs is haemorrhaging too much money too fast.

Earlier this week I thought of three keys words that I want to keep my mind focused on when I’m contemplating a trade: participation, patience and picky. These are my three little Ps and the market is the big bad wolf.

Participation: you can only make money if you actually place trades. You have to be in it to win it. This means being willing and capable of placing trades. I have no restrictions as to when I can place a trade. I will prefer to place a trade during the day so that I can more easily monitor it and move the SL to BE when I think it has moved into enough profit. I’m not adverse to placing trades on Friday, during the Asian session, or other ‘slow’ periods that other traders often avoid.

Patience: The market’s not going to move 100 or 200 pips every day, so it can often make sense to not trade. A big part of the millipede method is a waiting game. Even when you have profitable legs active you generally have to wait weeks before you can reap the profit of what you’ve sown. Having patience is often counter to wanting to participate.

Picky: the pivot that tips the balance towards either participating or being patient and holding off is being picky in the entry setups that I’m willing to place a trade on.

I’ve also made two other decisions relating to how I trade day to day. Starting next week I am going to only look at trading EUR/USD. I have been consistently profitable trading EUR/USD with the millipede method. It is the currency I have the most experience with (by a long shot). Every other currency I am either okay with (AUD/USD, EUR/CHF) or terrible (the rest), as evidenced by my trade results. Instead of placing potentially three or four trades across multiple currencies on a given day I will instead be solely focused on EUR/USD, where I’ll stick to pulling the plug if I experience two losses in a day. I don’t really expect to place more than two trades in any given day anyway, but I’m going to keep that rule for those days when I get a rush of blood to the head and want to make back whatever strife has befallen me.

Up to now I’ve been very loose with my initial SL levels on newly opened trades (i.e. there haven’t been any, thus the USD/CHF pain mentioned in a previous post on the SNB intervention). I’m been slowly reigning that back in and I’ve settled on having a 50 pip SL level right from the get-go. When I have a trade underwater it ties my hands mentally about knowing what the best course of action is. The open trade acts as an anchor that blinds me to the best course of action and I’m unable to determine what direction I want to be trading in. The sunk cost fallacy grabs hold of me and won’t let go. Since I’m narrowing down my focus to a single currency pair once again I don’t want that sort of albatross around my neck for days on end. So the 50 pip SL is there to clear away the baggage when my entry has been average or poor.

These changes are simply trying to focus on what seems to work for me and cut away the things that aren’t. Maybe I went too far thinking I could trade eight currencies simultaneously. I’m tussled with this aspect of the millipede method before. If you only focus on one currency, how well can you do during ranging periods? What if there are no big trend moves? The multiple currencies are a way to mitigate these problems. Unfortunately they seem to cause more problems for me than they solve. Thus, instead of chucking in the millipede method (and in process probably trading for good), I’m hunkering down on what I’ve been good at in the past and trying to leverage the currency pair that I know the best: the good, old Euro (if it manages to live through this crisis).

As another month has rolled around (okay, so I’m a bit slow) I think it’s time to get some statistics up on how my return to millipede trading is going. In the six weeks that I’ve been trading live again:

Total number of closed trades: 52
Number of open trades: 20 (18 of which have their SL set at BE)

This is the breakdown of closed trades:

There are two easy things to take away from the above table. The first is that I closed two trades in Aussie for 1001 pips that more than offset my outstanding loss of 138 pips. The second is that USD/CHF was a nightmare. As discussed in my last post I got caught out by the SNB intervention and eventually bailed on my severely underwater positions. Those costs me 1780 pips over 6 trades (although the bulk of those losing pips were in the one trade that got caught off guard).

Here’s what my diversification targets are at the moment (i.e. the minimum target I have for closing out any open positions so that I offset losses incurred since my last diversification):

For example, if I had any intentions to close out a profitable trade or two in EUR/JPY I would want to make sure that those trades had at least 251 pips of profit so that I pay off the expense incurred by the two losing trades I’ve already closed.

The 20 open trades have a unrealised pip balance of over 8000 pips. It’s probably no surprise that EUR/USD is the biggest beneficiary here, with six short trades standing at over 3000 pips. Unless the situation in Europe turns drastically positive in the short term, I’m planning on holding these trades until 1.3000 where I’ll diversify.

I’m tempted to diversify one of two outstanding AUD/USD shorts since they’re both over 1000 pips.

I was fortunate to start trading the millipede method on my live account at the right time; the euro had been range bound all summer and broke out to the downside shortly after I started. I wonder how I would fared if I had been trading during those summer months: would I have overtraded looking for the next big move or kept my powder dry?

I got a voice mail last week from a lady ‘at the office of Jason Adams and Forex Pro Cloner’. She advised me to call her back. I can only imagine the upsell she has lined up. I’m almost tempted to call her back and let rip on what a bunch of classic scam artists they are, but judging by the thickness of her Asian accent I don’t think it would be a very fruitful conversation. I’ve already rendered judgement on their atrocious product and can only be saddened by their gall to try and fleece customers out of even more money. If anyone wants to find out what I’m missed out on, feel free to give them a call at +1 (855) 563-3033 ext 4300.

On the flip side, I can recommend a presentation given by Joe DiNapoli from last November for the Chicago Mercantile Exchange and the Las Vegas Expo. It is broken up into 5 parts on YouTube:

On the morning of September 6th I thought my blurry, half closed eyes were seeing things when I sat down in front of my trading station. It said that I had a position that was at -633 pips of unrealized loss. A quick look at the charts confirmed the mother of all spikes.

A peek at some news sites confirmed what had happened: the Swiss National Bank (SNB), the central bank of Switzerland, had intervened in the market and set a peg of EUR/CHF no less than 1.2000. Since EUR/CHF had been idling just above 1.1000 before the intervention, it saw a rapid 1200 pip rise over a period of about 3 hours (with the last 1000 pips happening in the final 30 minutes). This move had repercussions in other Swissy currency pairs, one of which I trade: USD/CHF.

I had a resting sell limit order at 0.7916, just above the weeks’ high. I currently don’t place stop losses on my trades to begin with. Since I’m trading off the 4 hour charts I’m happy to give a newly opened trade a bit of breathing room initially before deciding what the maximum risk shall be. This is generally because I’ll be looking for the market to retrace and hit my limit orders. I’ll want to judge how the retrace is unfolding and when it looks likely that the trend has resumed before locking in the stop loss.

This practice obviously fails spectacularly when a central bank decides to intervene and moves the market relentlessly in one direction. This was compounded by the fact that I was sleeping when the intervention took place and my sell limit order was triggered in the mad move up in price. When I got to check on the trade after awaking USD/CHF was sitting somewhere around 0.8520 and I just got to see the dust settle.

In hindsight, the sunk cost fallacy grabbed me hard and wouldn’t let go on this trade. Did I want to just cut my loss and move on?

But I knew that the market loves to test a central bank’s resolve. It is inevitable that the market will test the SNB’s resolve to hold the 1.2000 level in EUR/CHF. The SNB can print unlimited amounts of currency to defend that level. Of course there will be domestic repercussions the more money it prints, so there is a limit somewhere. Right now I doubt anyone really knows. But the market will eventually attempt to find out. If the market’s going to test the SNB while not hold the trade and try and get out at a better price. It probably won’t get back to break even but a smaller loss is nothing to be sniffed at.

I don’t have a lot of experience with central bank interventions. I know the BOJ are the masters of interventions, but I only have limited knowledge of trading the yen pairs. I suspect if I did have more knowledge (which I have a bit more of now!) I would have known what the right thing to do was: do a stop and reverse.

There have been two interventions this year, the BOJ in March and now the SNB in September. The market will indeed test the central bank’s resolve. You only have to see where USD/JPY is today to believe that (i.e. it’s right back at the same level as when the BOJ intervened in March). It’s all just a question of timing.

In both cases the market went along with the central bank’s intentions: there was a continuation in the direction of the intervention. It lasted for three weeks after the BOJ intervention and we’ve had two and a half weeks of continued weakening of the Swiss Franc since September 6th.

I finally reached my uncle point in the aftermath of the FOMC decision this week. The official announcement of Operation Twist and the change in language to signal a significant negative outlook gave renewed emputise for US dollar bulls. This saw my USD/CHF position continue to take on water. With the pip loss now into four digits I decided that I’d been a fool to wait around for a change of direction for so loss. It was time to bite the bullet: I closed out the position for a loss of 1225 pips yesterday.

I had been putting on regular positions all the while: both long and short. When I closed out the big loser I had one other short that I closed at the same time. That’s why the pip value shown on my FXCM chart only show -734. That value is the average loss for each position. The other position was closed out for a loss of 243, for a total of 1468, and thus an average loss of 734 per position. I’m not sure why FXCM shows it this way.

Yes it sucks and I’m a bit annoyed with myself, but not too much. It only affected me negatively in one trade. On the flip side, the drive to US dollars benefited me very nicely in three other currency pairs that I had active trades on: EUR/USD, GBP/USD and AUD/USD.

In fact, later on the same day that I closed out the huge USD/CHF loss I also closed out two profitable AUD/USD legs for just over 1000 pips. I like to keep score on a currency pair basis, so I don’t see those Aussie profits as nullifying the Swiss loss in any way. To do that I will have to close out profitable trades in USD/CHF. But at least it keeps my account equity balance more in line.

The other reason why I’m not freaking out is that my return to trading the millipede way has been working out very nicely indeed so far. As I type, I currently have over 5700 pips of unrealized profit in 9 trades.

It’s been six weeks since my last journal update. With the start of a new month I thought it was time to document what I’ve been up to trading wise since then. As evidenced by my last post, I spent a couple of weeks trying out the Logical Forex indicators.

That essentially brought to a close my daily scalping sessions. I took a break from actively trading for a week and by the end of that week I’d settled on transitioning back to a longer time frame. Going back to my millipede trading was always on the cards but I wanted to make sure that I’d given scalping a fair shake. I previously mentioned that I didn’t want to give up scalping too soon, as I’d surely regret it later on. I’d think that if only I’d stuck at for a few more weeks or months something new would click and I’d be a master scalper. That thought still niggles at the back of my mind but I think at this stage any new advances or insights would take a considerable amount of extra time to achieve.

The rationale for scalping in the first place was to take a break from the millipede approach so I could focus on getting better at my entries. It was never originally about dumping millipede and focusing exclusively on scalping. Scalping became so engrossing that I actually ended spending far longer doing it than I had foreseen. I thought I would spend a month or two getting more practise at entries. In the end I was scalping for six months. I certainly got a lot of practice and hopefully learnt a lot. Before I went back to the millipede something else caught my eye that I wanted to play around with first.

Buff
I came across Trading in the Buff and purchased it. It’s got one single price action idea that I’ve not seen mentioned anywhere else. It’s novel and is one of those pieces of information that means you see something new in a chart that wasn’t evident to you before. After you’ve read a glut of trading books and other trading resources (forums, blogs, etc.) you’re often glad if there is one good nugget of information that you can get out of spending your money on a new book or course. In that respect, Trading in the Buff was well worth my $77. I now have another price action setup in my arsenal. I spent two weeks tracking and testing it out on a few different time frames (mainly 30 minute and 4 hour) across eight different pairs. In the end I decided it wasn’t something that I would want to trade completely in isolation but it’s definitely a part of my toolkit now that I’m back trading the millipede.

Alerts
As part of my shift back to long term trading I knew I was going to want a VPS so that I could setup alerts. Being able to set alerts on when price reaches a certain level would free me up from having to keep an eye on my charts night, noon and day. A big part of the fatigue from trading off the long term charts (hourly or 4 hour) is having to constantly check what going on in the market. If you do it too often every minor move looks like something significant and you get pulled into taking too many entries.

By setting up price alerts I can focus on price levels that have significance to me based on what sort of setups seem to be playing out. For example, if a breakout seems to be underway and I’m more interested in trading it as a false breakout I can set a price alert and wait to see if price comes back within the range. If there’s a trendline I can have a setup a price alert if the trendline is broken.

One of the other reasons why I like the Trading in the Buff setup is that it is not something that needs to be acted on immediately or when the current candle closes. The setup identifies a support or resistance level and so I can place a price alert for price touching that level well in advance.

VPS
This time around I decided to try out the service offered by Forex VPS. Everything was painless, from setting up a new account to accessing the VPS and getting my trading software installed on it. I had no issues and thus had no reason to contact their support.

The only setting I had to change on the VPS was to restrict it having only a single session per user. Otherwise if you log in from different locations you end up controlling a different session on the VPS. When what I wanted was to be able to login from work or home and see the same session that had my forex charting active.

For those who need to do this just do the following on the Windows server: Settings > Control Panel > Administrative Tools > Terminal Services Configuration > Server Settings > Restrict each user to one session.

After three weeks of using Forex VPS I had a brainwave and wondered if I could setup one my PCs at home as a server. I have a home theatre PC (HTPC) that would be perfect for the job. I just wasn’t sure how I would be able to connect to the HTPC from anywhere. I’d always used Remote Desktop up till this point which requires a static IP address for the server or computer that you want to connect to. My HTPC was going to be behind a dynamic IP since I use Comcast for my internet service.

After a bit of research I decided to try out TeamViewer. In a word it is fantastic. If I needed a second word it would be: free (for non-commercial purposes). It really is excellent and makes connecting to the HTPC from anywhere painless and easy. I also find the connection quality and responsiveness to be better than Remote Desktop. I can connect from any of my PCs, my Android smartphone, even my wife’s Macbook.

I still use FX Solution’s FX Accucharts as my preferred charting package on the VPS. It’s ability to do intersection alerts being the key factor that makes it a winner. In other words, you can have an alert fired off if price crosses a trendline or other indicator you have on the chart. In addition to the more regular alerts: simple price hitting a certain level and time alerts.

Millipede
To round things out, I’ve been back trading the millipede method on my live account since August 23rd. I still had one trade open. It is one of the first millipede trades I ever opened (I started trading the millipede method on 7 September 2010 and this trade was opened on 9 September 2010). The trade was long EUR/USD from 1.2665. Right now the trade stands at 1,600 pips in profit. It would have seen 2,300 pips of unrealized gain earlier this year in May.

Since last week I have 7 trades closed out at BE. I have 4 new open trades. A short EUR/USD at 240 pips, a short GBP/USD at 264 pips, a short USD/JPY at 30 pips and a short AUD/USD slightly underwater at -38 pips. The three trades in positive territory all have their SL set to BE. They’re also baby legs so who knows how long they will last for.

I’ve gotten things to be pretty settled again so let’s see how September fares.