Getting Started Online Day Trading by Kassandra Bentley Getting Started in Investment Clubs by Marsha Bertrand. Thomsett Getting Started with Exchange Traded Funds by Todd Lofton Getting Started with Fundamental Analysis by Michael C.
Getting Started in FOREX Trading Strategies
Traditional Strategies
The statistics are not pretty; nearly 90 percent of new traders lose their initial account deposit in less than six months—most of them using traditional strategies. For the code trader, the traditional support and resistance points are only useful to see what other traders are thinking.
The Codex Process
The FOREX market is not unlike other highly leveraged markets such as options or futures. The vast majority of traditional forex traders will look for the same or nearly the same support and resistance points.
Steps to Strategic Success
If you carefully examine many of the available indicators—typically some type of moving average or oscillator—you will discover the following: (1) The indicators are curve-fitted to a specific market environment, and (2) they are really just variations of the slope-intercept formula you learned in eighth grade algebra. Most of the market filters described in this book come from the FOREX Companion series of books written by this author and James Bickford.
Getting Started in FOREX Trading Strategies—Sections in Summary
But if you lose your grubstake, you won't be in the running for that big pay day. You will apply consistent money management rules consistent with your trading style and soft elements.
Acknowledgments
It may seem like the same information is being repeated, but the context is important and the repetition is helpful in fully grasping the ideas. If you want to stay up to date with the codex trading approach in general and the FxCodex method in particular, visit www.fxpraxis.com.
Traditional Elements of FOREX Strategy
Trading Techniques
Systems and Black Boxes
This means that the system is developed to fit the data and not the other way around. The best process is to look at charts of the markets against system performance.
Technical versus Fundamental Analysis
Most of the 15-minute bar chart is collapsed into the single bar to the far right of the daily chart. Due to the high leverage in FOREX, long-term forecasts may not be of value to many traders.
Why Technical Analysis?
Charting
They were useful and effective in the 1950s and 1960s, but have changed so dramatically that they are worthless today. Swing charts can be time-specific or price-specific, although most are price-specific in the manner of P&F charts.
Indicators
The more complex the indicator, the more difficult it is to determine what it actually measures. Another consequence of this opacity is that it is difficult to develop rational money management tools using most indicators because the primary link to prices has been severed in the calculation process.
Cycle Analysis
As the markets change, these parameters may need to be constantly changed and updated. Theoretically, if you add up all the cycles inherent in a market - again, assuming they're even there - you'll get a summed cycle that has the same highs and lows as the underlying market.
Behavior Analysis
Because there is no central clearinghouse for currency trading, there are no aggregate volume or open interest statistics. There is no centralized exchange or clearinghouse and thus no aggregate volume reporting or open interest tracking.
Market Filters
Markets – those involving the USD – often react very violently immediately after such announcements (as you will see in Figure 1.16). The pot of gold is always there, but if you lose too much money, you'll be out of the running to find it.
The Toolbox Approach
Markets move fast and it's very easy to get lost in your toolbox. If you use charts, don't use dot and figure and motion charts - they overlap too much.
Summary
The Soft Elements of Style
Style
Market Environments
Volatility (V) is defined as the "price action over a trend (directional movement) over and above the absolute value of the trend." How you measure and record any of the elements is not as important as ensuring that the measurements are consistent.
Market Selection
There are statistical methods to measure V and all the elements, but these are beyond the scope of this article. It's not hard to accurately gauge eyeball volatility once you get some practice on a few dozen cards.
Market Characteristics
The Trader Profile
I prefer the day trader profile, but again this is a personal decision with no right or wrong answer. Like the day traders, position traders must consistently use stops or stay alert as long as a trade is open.
Psychology and Attitude
Tactics
Traditional traders generally do not give enough consideration to the soft elements and never develop a coherent trading style. A coherent trading style derived from specific pre-trade choices gives the trader a framework to make the intelligent and quick decisions needed in the FOREX arena.
Money Management
Because most traditional traders focus on trading techniques, money management is too often an ad hoc endeavor. Money management is typically a set of rules for entry and exit, mostly simply consisting of stops to get out of a bad trade before too much capital erosion has occurred.
Risk and Reward
For example, you cannot expect to have a 10:1 winning ratio on trades with a maximum loss of 5 pips per trade. The position trader can live with perhaps a 30 percent win-loss ratio if the trader is nailing trades at 100 pips and limiting losses to 25 pips.
Entry
You'll have to set these in stone in part three, but for now get a sense of how they may or may not work together.
Exit
Analyzing your trades against these ratios can tell you a lot about your trading performance – your strengths and weaknesses. There's nothing wrong with that, but unless your trading tools tell you when to exit, you should have the ratios ready and waiting.
Stops
Traders easily panic when stops are hit too often; this is when emotions can take control of your trading. Closing means your money is at stake and your emotions are more likely to influence your decision.
Capital Allocation
The market has you where it wants you and is ready to pick you clean.
Developing a Trading Codex
The Codex Notebook
From Traditional to Codex
Codex Notebook
You will also want to have a daily and weekly game plan: your analysis of pending and potential trades, and suggested actions you will take given the different market conditions. A journal allows you to summarize your trading day: the good, the bad, and the ugly.
The Codex Toolbox
Trading Techniques—The Codes Toolbox
Market Environment
Select a Candidate
Entry Monitor
Debrief Report
Every market you trade can be defined in terms of Directional Movement and Volatility (DM/V). Directional Movement (DM) is the net change in prices over a specified number of time units.
Secondary Market Environment Factors
But you don't need software or complicated indicators to get an overview of market rhythm, the fourth basic component of market environments. If the market has fairly regular 200 pip ups and 100 pip downs, you don't want to enter a sell order after a 50 pip up unless you have compelling evidence to the contrary.
Bar Charts
But hold a piece of paper over the chart and then move it once to the right (as prices advance). The very act of charting helped the trader tune into the markets.
Swing Charts
The bar chart on the left is time specific; bars are drawn according to specific time units. The swing chart on the right is price specific; fluctuations are formed only in accordance with specific price changes.
Goodman Swing Count System
I believe the Goodman Swing Count System (GSCS) is a huge improvement over both Gann and Elliott. Price charts in FOREX and other markets follow the same rules whether they describe a very short term history (tick charts) or a very long term history (monthly charts).
GSCS Components
According to the author, this is the most tradable pattern in all markets. In Elliott Wave theory, the 4-swing is a non-unique part of the 5-swing Elliott Wave.
Advanced Goodman Rules
If the first component of a Goodman Wave is simple (a single swing), the second component will usually be complex (a 1-2-3 swing or matrix). The triple intersection represents equilibrium at four points. the large wall charts at Peavey & Company.
Trading GSCS
The points of a swing from any initial swing can give the trader a rough idea of how and where a Goodman Wave can propagate. If the first swing is flat, you can expect the second swing to be complex in a Goodman wave and weigh the expected propagation of the complex swing.
Goodman Cycle Count System
The next measurement is taken from the most current point in the next swing component back horizontally to the first swing component. The calculation is as follows: The primary swing will drop (in time) ± 1 from the ideal measurement point of 6 to the secondary swing measurement.
Nofri’s Congestion Phase
This is the ratio of the range of the open and close for a specific time frame to the full high to low range for that time. If the ratio is low, it is assumed that the price action for that time from high to low held more validity because it is closer to the open and close for that time period.
FxCodex Toolbox
Style 101 As a position trader, holding positions over multiple sessions exposes you to enormous risk, even if you use stops. The smaller range is used for timing entry and exit, and the largest is used to determine long-term trends and maintain perspective so you don't lose the wood for the trees.
Codex Markets
Keep in mind that a market can look vastly different on different chart scales and also within different timeframes. A market's personality can look different on different bar charts, as a function of either the scale of the chart or the range of the chart.
Style and Market Environment
There is an old saying, "Acting down to a good sleep." The money at stake may be too much, or you count too much on success. Never trade with money you can't afford to lose or give away to charity.
Record Keeping
Make the break long enough to accomplish two things: (1) Clear your mind of the trade and the intense emotion of the loss. act-of-the-moment. 4. Trading markets with high volatility and high directional movement. 5. Trading the news instead of the reaction to it. 6. Trading Outside Your Market Environment Profile. 10. Trade with money you can't afford to lose.
Making Money
Management Decisions
Money Management Parameters
But don't go off-board - that is, outside of them - too often without good reason. You can't have it all: Don't expect to both hit a high percentage of winning trades (50 percent or more) and also use very close stops (10 pips) and/or high risk/reward parameters (5:1 or more).
Breaking Even
However, if a pair pulls you out of your trading profile, it may be better to look for another opportunity. As long as you don't over trade, the cost of doing business in FOREX is so small that the trader can afford such luxuries.
Trade Size
Statistically speaking, you have a higher overall winning expectation with ten 10-pips losing trades than a single 100-pips loss. Breaking even requires that you give most of your pre-trade consideration to the risk associated with a trade.
Market Entry and Exit
Entry and exit of a graph is the most transparent; you don't need to translate the meaning of one instrument to another to make a decision. My FxCodex approach uses the entry and exit techniques inherent in Getting Started in Forex Trading, namely GSCS.
Monitoring a Trade
Exit decisions can be due to reaching your profit target and/or the market hitting your stop loss. I believe that any codex approach should use the chart entry and exit method, if not with GSCS, then with some other internal technique, even if it is a fixed price method.
Setting Up Your Trading Platform
Selecting a Broker/Dealer
Please note that most trading stations allow you to customize the appearance of a card. You will be looking at the screen for many hours, so make a good first choice and try to stick to it.
Demo Account
Be sure that a trading platform has as many of the tools you need and use as possible. Most brokers only ask for the most basic information for a demo account, but you will be on their mailing list.
Overkill
Once you've chosen a broker/dealer and a trading platform, it's time to set it up for trading. Two screens should do; one for your broker-dealer platform, another for charts and indicators.
The Codex Method of Trading FOREX
Tracking Markets
If you decide to use GSCS as your primary chart interpretation method, use only the ordinal principles at first; there are many good trades waiting to be made this way. After you have mastered the ordinal rules and feel confident in your ability and experiences, you can concentrate on the cardinal rules.
Tracking Candidates
The circled endpoint represents the double intersection of the 50% movement of two waves – the waves of the first three minor waves and the wave of the third wave. If it's a 15-minute chart, look at the hourly chart to determine the primary market trend.
Selecting Markets
Perspective
Close Examination
If you use indicators, now is the time to look at them and see what they tell you about the market. Note: Pip spreads for some broker/dealers can widen massively during these periods, reaching as high as 30 pips for the EUR/USD – another good reason to hold back.
Close Your Eyes
Making a Trade
How Did We Get Here?
The FXCodex Entry Technique
The Initial Stop-Loss
You have already done all the hard work of candidate monitoring, candidate selection and qualification, and entry into the trade. Watching for unexpected news events or price action (they often go together) that may require trade rescue.
What If the Music Stops?
Move your stop-loss as the trade works in your favor to first guarantee and then maximize the profit from the trade. This is where you have to sit on your hands and wait for the outcome of the trade - the market's verdict.
Intersession or Fresh Start?
If you need to trade something and the perfect opportunity is missing, trade in calm markets. For the new trader, I do not recommend maintaining an active position in the market if you are not online and looking at it full time.
Monitoring Criteria
On the downside, the longer you are in the market, the higher the probability that a disturbing news event will hit or the overall composition of the market will change dramatically.
Trailing Stops
Pay attention to the ME profile of the market you are trading and watch for ME changes as a clue to consider exiting soon. Stops can be raised after downward shocks and the market starts to move up again.
Exiting a Trade
Steps to Exiting a Trade
The market neither knows nor cares if you are in or out if you get stopped out or hit your profit target. Do not do this unless new information has come into the market that would change your previous stop-loss or price target.
The Complete FOREX Trader
Postmortem and Record Keeping
Why Keep Tracking Records?
Another good reason to keep consistent records is to be able to take the pulse of your emotional state, committing yourself to staying with the process itself. Keeping records will help you not stray from the straight and narrow path of your codex.
Codex Records
Items in the Trade Summary Here you want to be able to get a quick snapshot of how you're doing. Elements of the Trading Plan The daily trading plan should be a short paragraph including the main points you intend to observe.
Options and Options
Trading Tools
A book that emphasizes stock charts or commodity futures charts is perfectly fine for the FOREX trader as a study guide for that technique. Once established, they will allow the FOREX trader to use the same tools as the commodity futures trader.
Options
You are said to have the right to "call" the stock, commodity future or currency if you buy a call. USD, where you are long the dollar - you can buy a USD put against the EUR as a hedge.
The Dreams of Reason—
To Be or Not to Be a FOREX Trader
Nine Characteristics of Successful Traders
If something doesn't sell and costs you money, you discount it and download it as soon as possible. The more emotionally involved you are with your money, the harder it is to make objective and clear decisions about entering and exiting the market.
Emotions
They come to work with a plan that includes many contingencies and not just what they hope will happen. There is no simple answer, of course, or we would all be winners and markets would cease to exist.
Abilities
If you have failed just a little at FOREX and you have the determination and the money, keep trying. But if you get caught up in one marketing campaign after another, it might be time to shake off the white towel and move on to another area better suited to your emotional makeup, your specific traits, or your wiring.
Visual Basic Source Code
How the FOREX Game Is Played
Market Maker or ECN?
If the close price is higher than the open price, this area of the chart is not shaded. The cost of this process is based on the interest rate difference of the two currencies.
