I hope you are well and that you survived manic Monday! It was certainly one for the history books. For the record, here’s what happened to global stock markets yesterday:
Dow Jones: -777.68 (-6.98%)
S&P 500: -106.62 (-8.79%)
Nasdaq 100: -175.89 (-10.52%)
FTSE 100: -269.70 (-5.30%)
DAX: -256.42 (-4.50%)
CAC: -209.90 (-5.04%)
It happened principally because US congress unexpectedly failed to back Bush’s bailout bill. Markets were down any way in early trading because it looked like the bill that was going to congress was too watered down to be effective anyway. However, a watered down bill was evidently more popular than no bill at all! European markets were down less only because they had closed by the time news on the bill came out.
Politicians and journalists can’t go round blaming short sellers now. As I outlined last week, in the few moments throughout history in which short selling was banned, it often had the opposite effect.
In 1932, after short selling was banned, the Dow popped up then rolled over by half. Let’s hope we’re not heading that way now.
Most congress members who were voting were up for re-election and spending $700bn seemed a hard sell to the electorate. However, it’s interesting to note that well over $700bn was wiped off the value of US shares last night. Still, in some ways, markets could have fell more yesterday.
We really could have had the mother of all crashes (as Bush was predicting if the bailout failed to get passed). The fact that we didn’t and a floor was found not far below the lows of early September, might just indicate that there’s enough in the market to keep it alive (indeed US futures seem to be bouncing as I send this off).
Onto other things now. If you’re anything like me, you’ll always wonder how to know when and when not to enter a trade.
Know when to enter a trade – the importance of discretion
I’ve had a number of pleasant email exchanges with various members and the same subject crops up quite often. Discretion. That subjective ability of knowing when to enter trades and when not to. You might find a great system for timing entries and exits, but it’s quite common to find the system vendor making better trades than you. For example, this seems to be the case with FX53 and Kevin Adams. The system works very well and Kevin is a genuine chap, but different people get different results, even following the same system. This isn’t isolated to FX53, it happens with virtually every trading system ever invented in my experience. Give a system to 100 different people and they will trade it in at least 75 different ways.
Discretion is hard to quantify as it is often based on market experience. The best analogy I can think of is of sailor being able to predict a storm (I’m thinking Napoleonic era here, ala Hornblower). You can be the top of your class from the academy, but that’s no substitute for learning real seamanship. Only after a few years at sea will you develop your own intuitive sense of how to judge wind conditions or how to outsmart an enemy.
You need systems, don’t get me wrong, just as you might have needed to learn elements of navigation if sailing a three-masted ship. However what makes a good commander great, like Nelson is discretion. Unfortunately discretion isn’t something that you can learn from a book or from a system package, it comes from direct experience and time at the coal-face. Many systems will work without discretion, but there are probably many more that work better with it.
There are three types of trading methodologies:
Black box: 100% strict rules to follow with no interpretation. Can be dumb and not adapt to changing market conditions.
Discretionary: No strict rules, but trading based on your interpretation of market conditions. Can be confusing and hard to make real decisions.
Inbetween: Use of mechanical systems with elements of discretion.
It is just my opinion, but I would argue that a system that involves at least some element of discretion is the best way forward. There are no short cuts to experience, but it needn’t cost you anything. Time spend watching markets helps you develop your own style of trading. We’re all individuals and perhaps it’s better to recognise that we all see the world from behind our own eyes. A pro trader I once met said to me that it doesn’t matter what you do in trading as long as you do it consistently. If you lose by consistently doing something, that’s fine because you can record what you were doing and not do it again. If you are inconsistent you can never tell what works and what doesn’t. So keeping a trading diary which records notes next to each trade can be invaluable. Those notes could help you become a better trader than any system you might purchase.
Prizes up for grabs
Last week to grab a prize by sending over your feedback. I’m looking for the best reader reviews of trading systems and tipsheets you’ve used. In particular I need as much information as possible on the your experience with training events held by Greg Secker, Darren Winters, Vince Stanzione or another big name trader.
I’ve had some great replies so far and there are some early front runners. The winner will get a copy of Malcolm Pryor’s excellent book on spread betting as well as some mystery prizes from my collection of trading systems (The market Maven cupboard is bulging at the moment). I’ll organise a runner up prize too. Send in your experiences, no matter how brief, I’m sure they’ll be useful.
Market Maven recommends
“Why Do The Trading Gurus Hate This Genial-Looking Fly Fisherman So Much?”
Because he’s just made all their expensive and complex systems redundant… And now he wants to Show You The Lazy Way To Rake In An Easy £77-£119 An Hour From The Financial Markets – Without Leaving Home!”
If you missed my positive endorsement last week about Ian Williams’ EZTrade, check out full details here:
EZ Trade – http://www.canonburypublishing.com/eztrademm/
System watch
Last week I mentioned that I had positive experiences with FX Money map. I should have stressed more that I had good experiences because I had the opportunity to trade a tweaked version which included some additional filters which made it worked better. A beginner trader may not find the off the shelf package a straight forward experience, particularly considering the cost and ongoing data expenses.
Another system that’s been blasting my inbox (and many of yours too it seems) is Forex AutoCash Robot (http://forex-autocash-robot.com). As the name suggests, it’s supposedly a completely automated trading system that will trade for you while you go about your business. The marketing shot has been crude but effective. The affiliates started sending out emails with just a video of Forex AutoCash, no payment links, just the video.
If you watch it, they’ll mesmerise you with the ‘dream’ first of all. They ask you to imagine what it would be like having all the money being automatically generated for you while you sleep or go to work. There’s very little about how the system works.
The system vendors make an incredible claim that the system hasn’t lost a trade in 9 years. Now lets get this straight, there are only a few ways to have no losing trades over 9 years.
1) Make no trades! Simple eh? Can’t lose if you don’t trade.
2) Lie! Just like the second hand care salesman getting rid of the old banger in the court yard, being economic with the truth might help shift that old Ford Mondeo you’ve had lying around for a while. Mind you, you’d have to be a real Swiss Tony to tell a porky pie of that size.
3) Completely curve fit the system. Curve fitting/ back fitting refer to creating a system isn’t based on logical criteria, but down to you fitting the past to make a seem profitable. For example if you notice that the Euro went up against the Dollar on May the 22nd September the 29th and
December 3rd in 2008. You might make a rule to go long on the 22nd of May, 29th of September and December 3rd only. When you run a system test, it will be profitable in the past only, but when you actually trade it live it will almost certainly lose money. This is an extreme example and you hopefully get what I’m talking about. It’s very easy to create as system that worked in the past, because you know what happened in the past. Getting a system to work in the future is the key. I very much doubt that Forex AutoCash Robot has been subject to significant live testing and the results shown are likely to be entirely theoretical. I doubt also that the system takes into account spreads, which might entirely wipe out the system’s effectiveness when applied.
4) Have no stop loss. Having no stop loss might ensure you have a 100% record. If you went long EUR/ USD with a 10 pip target, the likelihood is that unless you bought right at the top, eventually EUR/ USD will rise 10 pips. It might take minutes, it might take months, but eventually, it’s likely that your target will be hit eventually. I would advise readers against this completely as it might be something that works fine for months, years even then one day your account gets wiped out by the one trade that doesn’t go your way.
Combine a little bit of curve fitting and a lack of stops and I think you’ve got the reason why Forex AutoCash Robot has a 100% strike rate. I admit I haven’t tried the software, but I’ve seen enough from Forex Auto Pilot and Forex killer (who are promoting this system) to know the type of games they play.
On a slightly more positive note, I’ve been asked to look into 10 Minute Forex Wealth Builder. (http://www.10-minute-forex-wealth-builder.com/). I must admit I was immediately put off by the sales page, which ticks all the click bank marketing boxes. Flashy sales page, pictures of the system in boxes and testimonials from dubious system vendors. However I have had a quick play around with the system and wasn’t immediately put off which is a positive!
10 Minute Forex Wealth Builder has two methods in it: the breakout method and the swing trading method. The Swing trading method appears to work best and thankfully one of my trusty system testers has been putting it to the test for most of the year.
Here’s his feedback, for which I’m ever grateful:
“The criteria are fairly strict, so it often works out as one trade per week, but can go several weeks without giving one. I’ve just started going through the 4hr charts, and it looks promising on that timeframe as well.”
The system appears to work reasonably well without being spectacular, there have been some 300 pip moves and some 130 pip losses. It’s hard to make a definitive conclusion with less then 25 trades to go off, but so far I haven’t binned it which is saying a lot for such a system (similar to Forex Wealth Builder). At $77 it won’t break the bank, but if you are interested, do test it out thoroughly by paper trading first. Also don’t forget that there is always an 8 week money back period with Click bank products if you apply directly to click bank for the refund not the system vendor.
My trades
A whippy few weeks haven’t made for great trading. Some small losses on GBP/ JPY, NZD/ USD and EUR/ JPY some open trades that aren’t exactly setting the world on fire. I’m short USD/ CAD from 1.043 and short EUR/ GBP. A short on the NQ (Emini Nasdaq 100 futures) has paid off nicely, but all in all I’ve been treading carefully these last few weeks. I’ve not been trading the ORB method as volatility is just too great, but I will certainly come back to it when things settle down. I caught some of the drop with the NQ trade but the bail out rejection came as I was washing the dishes so I was unable to capitalise on further trades!
This week’s hot trading buttons
This week’s flow of economic news is dominated by Wednesday’s ADP Non Farm employment change and Fridays Non Farm payroll figures. Other top tier announcements include Wednesday’s US ISM manufacturing PMI and UK Manufacturing PMI. Thursday brings UK Nationwide house price figures while the ECB press conference on Thursday could also move markets. However, as we’ve seen over the last few weeks, planned economic announcements could prove secondary to any breaking news.
Trading wisdom
“No matter what the models say, traders are not machines guided by silicon chips; they are impressionable and imitative; they run in flocks and retreat in hordes.” – Roger Lowenstein
