ForexSpirit

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.

It was nice to try out a forex product that was pretty much exactly what it was described as in the marketing speel. The Logical Forex method is purely focused on scalping, getting in and out for a few pips.

For your $78 a month you gain access to a group of indicators that only work in NinjaTrader. The indicators are designed to be used on a 1 range bar chart and the recommended pairs to trade are EUR/USD and EUR/JPY. You can see plenty of pictures of the indicators on the Logical Forex website but here’s an example that show cases most of them:

Indicators
Here’s my interpretation of what most of the indicators are:

The white line in the main panel is the tick price. The Flow indicator is the thin wavy lines either side of the white line. They are obviously some sort of moving average of price and remind me of the rainbow moving averages in the Cyrox scalping system.

All the colours used in the various indicators are nicely consistent: blue shows a rise, red is a fall and yellow is unchanged. If you follow one of the moving average lines it is blue while sloping up, red if moving down and yellow if it’s going sideways.

The light grey grid lines in the background are the Activity lines that are useful for determining how much activity has taken place within a given period of time. This can be used to gauge what the volatility is like and if it has been increasing or decreasing. I found this simple grid approach to be rather clever and quite useful.

The horizontal lines made up of red and blue coloured dots are called Magnet Lines. These seemed to be just the last two significant high or low prices.

The Phase indicator is in the second panel and seems to be a stochastic oscillator used to help determine if price is overbought or oversold.

The Watchdog indicator in the bottom panel is a culmination of all the other indicators and is mainly used to get a heads up that a potential trade setup is on the cards. More often than not I felt that the Watchdog was late to the party in helping me pick out potential setups so I tended not to rely too much on it.

There is also a News indicator used that highlights the chart when a news item is imminent.

When you plonk down your money you get access to a series of videos that goes through the rationale for each of the indicators. You do not get a detailed description of how the indicators are derived or too much information on how to use each one in isolation.

Patterns
Most of the upfront documentation takes a holistic approach and presents all the indicators as a unified package. You are supposed to spend a significant amount of screen time to just observe how the indicators unfold as price moves. With enough time the hope is that your brain’s subconscious pattern matching ability will pick out and identify to you those situations that are worth marking as high probability and thus worth placing a trade on.

This focus on educating the trader about pattern matching and making it a core focus on becoming a successful scalper is commendable but one of my biggest strikes against the Logical Forex method is that everything in this area is left as an exercise to the aspiring trader. If the company instead provided more educational material on what patterns should be looked for, how to spot tell-tale signs that a potential pattern is worth considering or not, exercises and most importantly a feedback look so that the aspiring trader can continually learn and know that they are headed in the right direction they might still be getting my money.

High Probability
If you read the bulk of the content that is freely available on their website, especially in the blog section, you’ll soon learn that one of the main high probability trades is when price interacts with a Magnet Line and the Flow lines are parallel or expanding slightly in the direction price is moving. You are then recommended to look at your broker’s price feed to get the ‘real’ price you’ll be trading from and thus decide if you want to enter a trade or not.

Let’s break that down a bit. When price is interacting or touching a Magnet line all that means is that price has reached a prior high or low. There are continual references on their website that Magnet Lines are more than just simple support and resistance. Maybe there is some secret sauce that I can’t fathom but in my simple eyes they are just recent high and low turning points. Support and resistance is traditionally made up of multiple highs or lows at around the same price point. These Magnet Lines are thus not support or resistance levels in the traditional sense but I never found one that I couldn’t track back to a high or low on a regular bar chart.

So if price has reached a Magnet Line the high probability setup is based on simple breakouts. Nothing revolutionary there at all (not that there needs to be of course), I just never figured out why it needed to be clouded by new terminology.

The parallel or expanding Flow lines are used to show that there is consistent or increasing momentum behind the current move. The more momentum behind a breakout the better.

You then switch your focus to your broker trading platform to see what the price available to you is (rather than what the price feed is being used in NinjaTrader). Do you buy the immediate breakout? Do you wait for a push through, a small pullback and get in on the continuation? All questions that are left to the aspiring trader to figure out and make their own conclusions on.

London
I was scalping EUR/USD at 6:00 EDT for an hour for many months prior to testing out the Logical Forex indicators. I tried using them during the same time period to start off with. After about a week of using them during this time frame I decided it might be better to try trading during the London open.

The 6:00 EDT hour is generally quiet and sees far fewer breakouts and strong moves compared to other hours of the day. So I decided to try and trading one of those more active hours: the London open at 3:00 EDT. This meant getting up in the middle of the night which was something I haven’t done in a long time.

I did this for about a week and a half before deciding that it just wasn’t going to be sustainable long term. After conditioning myself to get up early over the last six months I had no real trouble getting up at 3:00 EDT when my alarm clock sounded. The problem was getting back to sleep again. I would finish trading at 4:00 EDT (sometimes even earlier if I’d had a good trade or two and wanted to leave it at that) and head back to bed. I would lie awake, taking forever to get back to sleep. I think my mind was too pumped after having spent that short amount of time concentrating and being intently focused.

This meant I got less than my usual amount of sleep and after a couple of days I could feel it getting to me. While I felt tired it was more than just that. My mind felt off kilter and I couldn’t think straight. It was very weird and I’m sure there were some classic sleep deprivation symptoms on display.

After taking a break to get back to an even keel I reverted back to my 6:00 EDT time slot.

Premium
I did not purchase the mentoring course, the premium videos (which seems to be the mentoring course in a box), or the Doctor (where you can get feedback on a single trade you took). So I can provide zero feedback on them.

Conclusion
In the end I have decided not to continue my subscription to Logical Forex. The main factors that influenced my decision were:

• If you stick to looking for high probability trades that are based on breakouts you want to be able to trade the more active hours of the day. Since 6:00 EDT is my ideal time slot this was not a good mesh for me. There are the occasional breakouts but more often than not they are false breakouts.
• The way to identify the high probability breakouts was price interacting with a Magnet Line, the Flow lines parallel and the other indicators in line. While the Logical Forex indicators show this setup nicely I had to decide if they were worth $78 a month versus being able to see the same setup on a regular 30 second chart that I’m used to. I can still see when price is interacting with a recent high or low on my Oanda chart and if I’ve been paying attention I’ll know if the way price moved over the past minute or two has shown it moving with decent or increasing momentum.
• On top of that, when I’m looking at my Oanda chart I’m looking at my broker’s price feed. I don’t need to switch focus when watching the Ninja Trader chart and a setup has appeared.
• All the effort spent pattern matching the Logical Forex indicators can just as easily be spent pattern matching on a regular candle stick chart, or a bar chart, or a range chart, or whatever chart you are most confortable using.
• Support was very good and I had all my questions answered. I still think they’re missing out by not having any sort of process or educational roadmap on how to learn and hone the pattern matching aspects of scalping. Having a feedback mechanism would be invaluable. There is also no forum or other way to interact with other Logical Forex traders. You really are just paying $78 a month for the indicators. Making them work for you is up to the individual after that. At its core trading really is just all up to the individual. I recognise that but I still think the company could help provide short cuts and more roadmaps on how to get there.

The $28 for a two week trial is very reasonable and worth taking advantage of if you are curious.

I’m going to take a little break from journaling my trades for about the next week or so. I’m testing out the Logical Forex setup and as such any trades taken are more experimental in nature than anything else. I need to give it a few days to see what jives.

I’m still trading every morning and I might keep some notes along the way that I can put to use in a summary or even review of the Logical Forex stuff when I’ve given it a thorough evaluation.

There’s also going to be the minor distraction of Cliffs of Dover being released on Tuesday. I’ve been playing a decent amount of IL2 to shake off the rust and I’m prepared to enjoy CloD, warts and all (the development team are still working through a list of problems and known issues).

I tried to not overly concern myself about the market movements and structure leading up to when I started trading. Instead I wanted to see if I could just concentrate on what was unfolding and try and enter the flow.

I felt pretty good about how it turned out, especially with the way the second trade finished. I could feel the upward pressure building and I just entered when it felt right to me. After price popped 3 or 4 pips and then stalled I just exited.