This recounting of my trading background was originally written after just joining the DayForex mentoring program run by Dirk du Toit in late October 2005.

On Thursday, October 20, I joined the DayForex mentoring program run by Dirk du Toit. I feel that I have learnt as much as I can about trading from reading books and online resources. I need to take the next step and have a successful trader critique my day-to-day actions and mindset if I am to achieve long-term consistency and continued progress in my trading ability.

A brief history of my trading care to date now follows. This should hopefully provide both myself and Dirk with a point of reference going forward.

My aunt Mary and uncle Conor are constantly on the lookout for ways to make money. Business ventures, property investment, creating board games; they’ve tried them all. While on holiday in Mijas, Spain, during the summer of 2002 they were introduced to forex trading by a British couple they met. My aunt told my mom all about it, which in turn led to me being asked to investigate, as there were several technical hurdles to overcome (installing a trading platform and charting service, etc.).

The British couple seemed to have gotten started through a Canadian firm, who for the bargain price of $2000 would provide you with all the information that you needed to watch the money just roll in.

The basic setup involved signing up with FXCM as your broker, paying for monthly charts from Comstock and signals from AceTrader. A nice scam at the time, and obviously the Canadian firm was not long for this world.

My aunt and uncle paid their money and started on their own trading journey (which is a whole other story itself). With these initial leads I investigated the options as far as brokers, charting providers, signal providers, etc. were concerned.

Initial research was done online on forex forums such as Moneytec, Oanda’s discussion forum and the general trading forum at Trade2Win. Back in 2002 and 2003 these forums had a decent signal to noise ratio and plenty of information was extracted from them. Nowadays, whether due to their increased number of forum members or my increase in knowledge, the signal to noise ratio of these forums is extremely low. The only forum of any value in my eyes at the moment is Forex Factory.

The first trading books I read included ‘Reminiscence of a Stock Operator’, ‘Market Wizards’ and ‘New Market Wizards’. Some of my favorite trading books that I’ve read since would include Mark Douglas’ ‘Trading in the Zone’ and ‘Way of the Warrior Trader’.

By the end of 2002 I had settled on CMS as my broker of choice (for their upcoming VT charting platform and their ability to use mini-lots), along with using trading signals from James at TeamForex. I demoed using this setup for a couple of months before going live at the start of 2003.

I did not see myself as having the skills or knowledge yet to generate my own entry and exit criteria, and so settled on TeamForex as a signal provider which would then allow me to focus my attention on my money management and psychology which were continually pointed out in my reading and research to be crucial to my long-tem success as a
trader.

I can not recall my exact money management approach when I first went live at the start of 2003; I think it was some form of fixed fractional. My initial deposit of $4000 rose to $10000 by May 2003 and things seemed to be going swimmingly.

June to December 2003 saw my equity fluctuate between its high of $10000 and $7000. This was mainly due to my increasing impatience (aka greed). I started demoing multiple other signal services, going live with some of them (but never for very long as each one seemed to magically perform very poorly the minute I went live with it). These other signal services included: 123 System, Your FX, FX System, TradeConsultant, Forex-MHV and Forex-DTS.

By the end of 2003 I was back to just focusing on TeamForex’s signals and my account made a new high at year’s end, resting in the $10400 region.

I had also switched to a fixed ratio money management approach in the final few months of 2003 to try and better manage limited capital using mini lots. Nowadays I much prefer to use micro lots and a fixed fractional money management approach.

January 2004 saw TeamForex have a dreadful month. My account dropped from its new high all the way down to $1400. This month ended up being a true test of fire on my journey to becoming a successful trader. At the turn of the New Year I was pumped coming out of 2003 given the gains of the last few months of the year, and I had dreams of my account equity rapidly growing. Visions of being able to buy a brand new car danced in front of my eyes. Then the market taught me a very important lesson. January saw TeamForex have their worst month ever. My use of the fixed ratio money management approach, along with a reluctance to reduce my position sizes meant I lost more than I should have, had I stuck to what my trading plan dictated. I succumbed to the classic mind game of: it’ll take me longer to recoup my losses if I reduce my gearing now, let’s not change it just yet.

I pulled the plug on TeamForex and took a three month break from trading altogether. The most important lesson I learnt from that period is that I need to set myself a given drawdown level, which if reached, I will take a break for a few days/weeks. You can’t keep looking to win back the losses immediately (especially if the entry and exit points are completely out of your hands).

The remainder of 2004 saw me putting together various trading plans, trying to determine what methodology suits my temperament and lifestyle. The general life cycle of each of these attempts was generally as follows: A trading approach/system that I would have come across and read about was selected to be the core trading system of my trading business plan. The trading methodology and rules were written down and the trading plan was executed on a demo account over a period of weeks/months.

The first trading plan was based on Robert Miner’s ‘Dynamic Trading’ approach. The confluence of fibonacci values on both price and time axis was very interesting and appealing. It was the Elliott Wave basis of the approach that meant it wasn’t for me, as I found that I just didn’t have the aptitude to determine the current wave structure of a market to make successful use the fibonacci confluences that are derived from a given wave pattern.

The second approach vetted was based on having entries on candle stick patterns at support and resistance levels (including fibonacci levels). My confidence in this trading approach slowly eroded over time as I could not get any consistency – the stop/start nature of the forex market did not help either, even though I stuck to 1 hour and 6 hour charts.

My research lead me to reading Joe Ross’ books and his focus on just looking at price action resonated with me. I have never been a strong believer in the vast majority of technical indicators; they always seemed to add clutter when I like to have clarity. I demo trading some of Joe Ross’ price action patterns (1-2-3s, ledges, congestion areas) but never as part of a formal trading business plan.

2005 saw a slow start to my trading activity. It picked up in February when Beau Diamond announced the update to his ’5 Minute Forex’ system, which I had investigated previously but never signed up for properly. A purely mechanical system, the new version looked very promising so I decided to give it a shot (even given my normal aversion to purely mechanical systems).

I went live with it relatively quickly, and my CMS account grew from its $1400 up to $1500 over a couple of weeks. With CMS still only offering mini lots, and my desire for greater finesse in applying a fixed fractional money management approach I opened a live account with FX Solutions to avail of their micro lots. The initial account size was $5000.

My lack of success in being able to develop a trading system that I could call my own led me back to investigating some of the signal providers I had used in the past to see how they were doing. TeamForex had certainly had its ups and downs in 2004, but 2005 seemed to find James in much better shape, with his Vortex system. I signed up for a 30 day trial mid-summer, and opened a second $5000 account with FX Solutions in preparation of continuing live with the TeamForex signals if they were decent. The first three weeks of signals were very positive, while the fourth week saw a loss of a few hundred pips (but still positive overall for the trial period). The loss though was outside the parameter allowed by James for his Vortex system, which meant that he was not happy with its performance, whereupon he proceeded to pull the plug on it. Another dead-end there then.

Back with the ’5 Minute Forex’ system: after its initial flying stat, it entered a slow, prolonged drawdown. It approached, then surpassed double the maximum drawdown that had been calculated using historical data in the system’s development. As it approached three times the drawdown in July I pulled out. My initial $5000 was down to $3500.

Back to the drawing board. My next trading plan incorporated the discretionary approach taught by Joe DiNapoli. The use of some basics lagging indicators to determine trend direction, the confluence of fibonacci levels on a smaller timeframe as a leading indicator, and a small set of specific patterns to mark trade setups.

Both GFT’s Dealbook FX2 software and Genesis’ TradeNavigator have the DiNapoli indicators and D-level drawing tools built in. I evaluated both during September and October 2005.

GFT’s Dealbook has nice charting but is horrible as a broker in the way they handle daily rollover and their abysmal account history reports

TradeNavigator proved to be an excellent charting program and was a joy to use during the month trial period.

I found the DiNapoli approach to be the one most suited to my mentality so far of all those that I have tried to date. My main concern with this approach would be the monthly charges. If I continued to use TradeNavigator, I would need to purchase the software itself for $795, followed by a monthly cost of $170. Given the relatively small size of my trading capital, this monthly cost seems rather excessive.

Before making a definite decision, I wanted to revisit an interesting trading approach that I had read in ‘Bird Watching in Lion Country’. Dirk’s Relational Analysis approach resonated strongly with me on the second reading. It is now obvious that I have decided to pursue the goal of incorporating fundamental analysis and the interaction of price, time and events over focusing on a purely technical approach to trading. I feel that it will prove more interesting, fulfilling and comprehensive as a trading methodology long into the future, especially in its ability to weather changing market conditions.