Journey to Samadhi

Trading Systems
1

You know, I’ve never discussed my trades much. I’ve talked ideas and systems, but always kept my trades to myself. With this thread, I’ll share some trading insights and current trades and you can disect it and maybe pull a few good ideas and concepts.

The number one thing I’ve learned over the years is that trading decisions are easier on daily charts. Trends are easier to indentify and trade set ups typically work out with a higher success rate.

while I’m not a fundamental trader, per se, I do pay attention to the obvious.

The obvious being…pay attention to the futures in the morning. When futures are down, the USD typically puts up a fight as the futures market rolls into the Dow. Only takes a few minutes on CNBC to determine whether your LONG position may start losing ground.

The credit crisis will continue to hurt any JPY SHORT position…but only in spurts. When it comes to this topic, investors create the fear and traders take advantage of the sell off. The safe trade is SHORT JPY on the long term charts until the BOJ stops taking advantage of the low value of the Yen.

An old myth that quickly disolved for me was the $$/Oil relationship. Doesn’t really exist. I was told early on that low oil was dollar good…and then told that high oil was dollar good. Personally, I’ve never seen any evidence that oil affects the USD whatsoever. If we were talking CAD…then yes. You can post charts and say, “See here, and here, where the price action reflected each other?!” Well, you can do that with 99.9% of any charts and find similar movement based on some fundamental based reaction.

I fell that trading for me is about 75/25 technical to fundamental. I trade based on what I see but watch for what may hurt me. So it’s method as well as discretion.

That being said, I use very little in the way of indicators…acutally just two simple moving averages, and that’s it. Overbought and oversold conditions I try to visualize in my mind by “seeing” the price average. This, I believe, keeps me in sync with the charts and makes trading decisions easier and more effective. I believe, personally, that a seasoned trader can see in the price movement the same thing that a MACD, ATR, Stochastics, and other suplemental indicators display. It’s a matter of opening your eyes. Nothing mystical about it. It’s the same concept of a Chess Master seeing 7 moves ahead. Pay attention to what the price is trying to tell you. Has nothing to do with bars or candle formations and I pay no attention to those. They can be good for some and bad for others as they tend to be self fulfilled prophecy.

Last week was an excellent week. It started off early with good movement and I was up about 750 points on 5 positions. By Thursday I had closed those trades on pull backs and re-opened when the Citi Corp. crap started to wane. By Friday I had closed enough to put me over the 880 mark.

No super system or indicator…no trade calls from a pay service…just a couple of visual lines and common sense.

So…let’s see where this goes. Learning this wonderful craft is a journey. Doubt, fear, and greed will lead you down a lot of paths of unfullfillment. Your best trading tool is the mind that god gave you.

Currently, I’m LONG GBP/JPY and EUR/JPY off rebounds off the 20 SMA.

GBP/JPY = -10 from 239.50
EUR/JPY = +4 from 166.99

Closed out the EUR/USD for +48 this afternoon off the 20 SMA. Decided to close it out as I wasn’t too thrilled with the price movement this afternoon. Closed out the GBP/USD at -27.

2

Thanks for the insight, muddbuddha. I’ve read your posts before and always appreciate the knowledge you impart.

I’m fairly new at Forex and have been testing various systems/strategies over the last few months. I’ve really been trying to cut out all the indicators since they only end up confusing me and end up preventing me from making an actual trade.

I hope you don’t mind if I pick your brain a little. Just a couple of questions.

  1. I’ve been looking at trading off the dailies myself. Besides the 20 SMA that you mentioned, which other one do you use?

At one point I was using a MA cross strategy, but I’ve always had problems with using MA’s as S/R lines. I never know when to get in or out with them.

  1. When you say “pay attention to the futures in the morning”, do you mean overall movement or specific ones?

  2. Forgive my ignorance, but I’m not quite sure what you mean by “When futures are down, the USD typically puts up a fight as the futures market rolls into the Dow”. Can you elaborate a little?

TIA for your help.

I appreciate what you said about your 75/25 technical/fundamental style. I’m more geared toward technical trading, although, as I said, too many indicators end up confusing me. My biggest problem is the fundamental side. I really don’t understand the relationships of the economic reports, except for what I read in the calendar (I use FF’s). I can’t imagine pouring over that kind of info on a regular basis.

I was also surprised to see that you don’t pay attention to candle formations. That seems to be the big thing nowadays, doesn’t it? Everyone talks about candle formations and what indicates what. I’ve always had trouble seeing them, and trying to figure out which of the myriad of formations are the most important. It’s nice to see that not all successful traders worry about them. I guess I’m in good company, then. :slight_smile:

Take care.

Terry

3

If any of you were watching last night, then you saw the huge move on Gold and the subsequent dollar sell off that pushed the EUR/USD to the largest daily move that I had seen in a long time. This, of course, was brought on by the Chinese officials spur of the moment comments of moving trillions of dollars away from USD assets. This caused a momentary panic in the market and prompted the big sell off. Let me say this…that guy is a dufus. He has a history of announcing big financial moves by China that have never happened. I believe he just likes the media attention, personally.

This morning while on the way to work, CNBC stated that there was a serious situation developing as the Dow futures were down almost 200 points. Ah…traders! :cool:

That being said, it [B]punished[/B] my LONG GBP/JPY and EUR/JPY positions terribly. I closed the GBP/JPY at -178 and the EUR/JPY at -98. Once the price closed and held below the 50 SMA on the 3 hour Oanda chart, I opened positions on both SHORT. Those are currently at 117 and 84, respectively. I also went SHORT AUD/JPY which is currently @ 117 from 105.97. So give and take…:rolleyes:

Once I recognized that the USD/CAD had reached it’s daily average range, I went LONG to pick up a small retrace trade… ta da!!!..it exceeded it’s normal range due to the panic and was -74 this morning. Well, being stubborn and knowing that traders are fickle and love to play the retrace, I decided to hold; I went ahead and closed that one a few minutes ago @ +98. It was bit of an aggressive trade, but I had sized the lots accordingly.

While we’re on the subject, let me say this about China:

When China speaks, the market listens. Even when it’s talking trash. China stands to be the Worlds richest and most powerful super power in a few years…and they know it. Why? Well, because they are about as capitalistic as a communist country can be without actually admitting that they are capitlists! God forbid!
There will never be a war with China…at least not in my lifetime. The financial hardship it would impose on both the USA and China would be devasting to the Global economy. That’s why we quietly excuse each others wrongs. When North Korea starting playing bully on the block with South Korea, they arrongantly thought that China had their back when the US stepped in…yeah,not quite. China isn’t going to risk relations with the USA for some backwater country like N. Korea. That would kill the Christmas DVD sales!!

The GBP/JPY trade was opened from 238.25 and the EUR/JPY @ 165.98 for reference sake.

4

FYI

I closed the GBP/JPY @ 206 pips; the EUR/JPY @ 147 pips; the AUD/JPY @ 178 pips. I’ve covered my losses from last night and made a few bucks in return.

Mostly due to the fact that the upbrupt sell off of USD pairs was so strong, that this reverse action was an opposing reaction to the movement. It may push a litle more, but for the most part, I think it will start wanning. :slight_smile:

Buy the slide…short the ride. :cool:

Also SHORT USD/CAD off a (hopefully) bounce of the 50 MA back to the downside; from 9326, currently at -2.

5

Thanks for the help, muddbuddha.

I must be suffering from information overload and my brain is shutting down. :rolleyes:

I look at the chart with the 20 & 50 SMA’s and see the movement, but I just can’t figure out what to do when the candles reach the SMA’s. For some reason, I can’t grasp how to trade off the lines.

Anyway, I appreciate your insight.

Terry

6

The biggest problem is looking for a system where none exists; and it took me some time to see the behavior of price in relation to the MAs. That’s basically the “system”.

For me a trade on the 3 hour or above is “possbile” once price closes and retains above the 50 MA. Once the trade gets going, I use the 20 MA as a trailing “pay attention to me!” line, but not necessary a stop out line. If price penetrates the 20 and holds above or below, then I consider exiting the trade - but as well, watch price as it moves back toward the 50. Does it bounce back? or ride the line like a roller coaster climbing the big hill? I typically find that the hill climb leads to an upward push rather than a downward drop as would be expected. If price bounces back and pushes off for more than three periods OR breaks the previous period(s) high, then I’ll re-enter in the previous direction.

The important things are: time period and pairs traded. Three hours and up are easier to trade. Less stressful…and you get more sleep. The pairs you choose are extremely important. The things I use to choose them are:

[B]Margin cost [/B]: [I]The more it costs to hold that pair, the fewer positions I can take in other pairs that may be moving to a greater degree. Try to pick pairs where the margin cost is justified by the movement.[/I]

[B]Volatility[/B] : [I]Dead pairs are a waste of time. If they flatten and zig zag back and forth in a 200 point range…avoid them. I like heavy trending pairs and pairs with a lot of daily volatility.[/I]

[B]Daily average range[/B] : [I]If the pair isn’t moving enough to justify in my mind continually holding it, then I remove it from the platform. I see no reason to tie up margin with a pair that may move 37 pips in two days from the trades open. I like results, and I like to see them every day. Some days I get none to little, but over the course of the week, I should see some postive progress on that position.[/I]

Currently I’m only trading 7 pairs and gold due to their volatility and trending, and four of those are YEN crosses. I also like low spreads and avoid anything higher than 8 pips on the Oanda platform. Most are under 4 and at times below 2.

Lastly, and this is important: [B]pay particular attention to your positions around 5PM EST, USA.[/B] I start watching mine around 4:30 going into the 5PM mark. For the last 8 to 9 months, 5PM to 5:30PM EST has been a very volatile period, especially for the YEN crosses. I don’t know why and I don’t know who is causing it, but it occurs pratically every day. Personally, I don’t care who or why, as long as is keeps occuring! It also lends some insight into possible direction for the next day as well.

7

Currently still SHORT USD/CAD :rolleyes:

Took 25 pips on EUR/USD. Could have held out for more, but Bernackes comments started to cause market flucuation, and I didn’t feel I was in a position to start losing ground at such a high level comfortably. Better safe than sorry. Worst case is I wait for the next pullback or correction and jump back in LONG at that point.

Took AUD/JPY SHORT off continued movement downward from 104.36.

Now if CAD will start to correct, then all will be good. Though it will probably be at the AUD/JPY SHORTs expense at it will most likely start rising again.:slight_smile:

8

Thanks so much for the insight and help.

I think I’ve got everything straight in my head except for the entry point.

I can see the entry when candles first cross the 50 MA, but what if it’s already crossed and well above/below? How can I determine the best entry point then?

For example, say that it crossed the 50 MA late Wednesday and moved up nicely. Thursday morning it’s well past the cross point and it “appears” that it will continue upward, but I’m not sure if it will or not. In effect, I’m frozen, staring at the chart, wondering what to do.

Do I get in or do I wait for it to reverse? Or should I wait for it to bounce off the 50 MA, or maybe cross the other way?

I hate it when I think I know what to do and, as soon as I get in, it reverses and moves against me to my SL. That’s frustrating.

I know I’m missing something here and, for the life of me, can’t quite put my finger on it. I feel like I’m at the threshold of the success room but can’t quite step inside.

Any enlightenment will be GREATLY appreciated.

Terry

9

[I]For example, say that it crossed the 50 MA late Wednesday and moved up nicely. Thursday morning it’s well past the cross point and it “appears” that it will continue upward, but I’m not sure if it will or not. In effect, I’m frozen, staring at the chart, wondering what to do.[/I]

[B]There are a few entry types you can use. I commonly use the pull back and bounce off the 20 as well as a break of the previous 3 period highs or lows. Those are my most common entries. [/B]

[I]Do I get in or do I wait for it to reverse? Or should I wait for it to bounce off the 50 MA, or maybe cross the other way?[/I]

[B]If I’m wrong and it continues through the 20 toward the 50, then I hold off to see how it reacts to the 50. Does it drop right through? or stop and ride the line? Possibly bounce right off? If it drops/rises through and closes on the opposing side, I typically watch it to see how it reacts once on the other side prior to entering. If you feel frustration because you think you’re missing out on some profit, then you need to stop and not get into the trade at all. You’re too hung up on the profit/loss and not the actual trade.

The key is not to force the trade. Wait for a good set up to develop. If you rush the trade because you’re fighting the urge to be in a trade, then you’ll loss more often than not.[/B]

[I]I hate it when I think I know what to do and, as soon as I get in, it reverses and moves against me to my SL. That’s frustrating.[/I]

[B]That’s fairly typical on longer time frames and something you just have to get used to. It’s not uncommon for price to move away 50-100 points from my entry and then move back my direction. Management skill is important when trading slower charts as it’s easier to overleverage and fall into margin call.[/B]

[I]I know I’m missing something here and, for the life of me, can’t quite put my finger on it. I feel like I’m at the threshold of the success room but can’t quite step inside.[/I]

[B]Don’t rush it. There’s a time when it all seems to come together and make perfect sense. That may be now or six months from now. But if you rush and become frustrated by repetitive failure to the point of quiting, then you’ll never know. Practice your trading technique prior to attempting it live or use it live and use micro lots (less than 1000 units).[/B]

10

Excellent. Thanks again for you help. I’ll definitely practice these entry techniques.

I know you’re right about rushing things, too. As a matter of fact, my wife and I were just talking about that today. I do have a tendency to push myself into a trade when there may not be a good setup, mostly because I want to start making some money. That, of course, leads to mistakes, and losses.

So, I’ll try to focus on the trade itself, watch for the setup with the info you’ve given me, and not think of the money so much (except for the money management, of course).

I’ll let you know how things develop.

Terry

11

Really enjoying your posts Muddbuddah, many thanks

12

Terry (in2blues), trust me…you’ll think you have that beast conquered and it will crop up time and time again. Greed and pride are a huge part of human nature and it takes time to overcome that tendency. As well, recognize it as it tries to re-emerge later on. I made a couple of bonehead trades last week that completely bombed just becuase I was doing well and you get that feeling that you can do no wrong. Man, how short lived it is! But it helps keep your perspective and subdue the superman attitude! :rolleyes:

Thanks, Tonymand, I appreciate it!

Now, back to business…

That USD/CAD position is not making very good progress and overall I’m getting disappointed with it.

I took a AUD/JPY SHORT yesterday @104.36 which is nicely up @219.
Took EUR/JPY @ 164.78 which is currently 116.
And lastly, the “big flutter engine”, the GBP/JPY from 237.93 which is up 303 at this moment, but keeps bouncing back and forth up to 345 and down to 300. The GBP/JPY and EUR/JPY were nice clean bounces off the 20 MA.
“nice and clean” in that they worked out in my favor!:wink:

There is always the risk that they would penetrate and head toward the 50; but I eyed them for quite a while to watch how they reacted once they got there.

I’ll probably go ahead and close these out now and lock them in for the weekend.

The important thing to remember, it’s not the system/method that makes the trader; it’s the trader that makes the system/method.

If some idiot (me!) can be successful trading one of the most volatile markets in the World using two simple moving averages, then you can do it too utilizing whatever method or system you choose. It just takes a bit of time to learn and understand the market and let that light switch in your brain finally turn and you realize, “Huh! This isn’t so bad!” :slight_smile:

Your close In2Blues, just keep the faith and be patient.

By the way, Dow Futures are down this morning which accounts for why my JPY crosses are in such good shape. It also explains why my CAD is underperforming. Don’t let a small Dow dip on Friday cause you to think it will last into Monday. Stock traders love rallys and it could happen easily on Monday. Locking in profits is never a bad thing.

Closed out GBP/JPY @ 246
Closed out EUR/JPY @ 147
Closed out AUD/JPY @ 238

Gonna leave the CAD and see how the Dow develops today.

13

[QUOTE=muddbuddha;28728]

If some idiot (me!) can be successful trading one of the most volatile markets in the World using two simple moving averages, then you can do it too utilizing whatever method or system you choose. It just takes a bit of time to learn and understand the market and let that light switch in your brain finally turn and you realize, “Huh! This isn’t so bad!” :slight_smile:

Well you are certainly no idiot and many traders new and old would do well to heed your words. I am certainly going to take a look at what you are doing and see how it fits with my approach. You never stop learning in this business if you want to survive

14

The Retrace Game…

Retrace trades are possibly the biggest number of trades attempted by forex traders. We LOVE to SHORT the percieved top and LONG the bottoms. It’s also been the leading cause of margin call out of any and all trades.

I can remember a trade a few years ago when the USD was pushing hard on the EUR and had barreled through 119.70 down toward 119.20. Being a dollar bear at the time and a terrible judge of range, I went LONG thinking, “It hasn’t been here before! No way it’s going to bust 119!”

Well, it did…and then would retrace slightly at which point I re-convinced myself that I was right and added another lot to my trade. So, one it broke 118.90 I was already 3 lots in and way behind. The USD chose to keep going downward towards 118.50… 118.35… 118.12, “Okay! This IS the bottom! If I go double lots here I can make back some of my negative and hold out for the rest!”

All said, the rally stopped around 117.90 if I recall correctly. But it really didn’t matter as Oanda had protected me by closing out all my postions :wink:
As my heart lay sinkin in my chest I thought, “That was possibly the dumbest thing I have ever done…”

I think about that day a lot to keep my head about me when the need arises.

Now, that being said, retrace trades CAN be protffitable if you pay atttention to one simple thing: THE DAILY RANGE.

If you LONG the EUR/USD after it has pushed south for 150 pips…then you stand a decent chance of picking up 20-30 pips. For the GBP/USD, you need to wait at least 200-225 pips and hold for 40-60.

For the YEN crosses, GBP you need to wait at least 300-400 pips, and similar for the AUD.

This is the ONLY safe method, in my mind, to play the retrace game. Don’t hold for big money, take your portion and get out.

Also, if you do open a retrace trade and the position dosn’t make any progress going into the afternoon, I highly suggest you close, take the small profit or loss, and call it a day. When a good size push is followed by stagnant price movement, it is often an indication that the next day, or that evening, the same is likely again. It not unusual for me to go 50-60 in the negative on a GBP/JPY retrace position prior to going positive.

Speaking of, 238.03 was the GBP/JPY top, so I’m attempting it myself. Currently @ -37. Also on the EUR/JPY at +8.

Hopefully this will work out in my favor. If the Dow opens terribily down and continues to slide, then I’ll lose on these. But the Dow loves recovery, so I’m EXPECTING my JPY LONGS to work out and my CAD to start to gain as oil should start picking up.

This week the banking sector has been reporting profits. And as many of you know, there has been record losses. But the reporting is about over and the market will quickly forget about the losses and attempt 15,000 again.:wink:

15

They definitely aren’t words of brilliance…just experience. Some good…some just flat out painful! :smiley:

I think the important thing is I never quit. Thought about it to several times. But I couldn’t stand the thought that I let the market beat me; when in reality, it was me beating me. My biggest demon was myself. :cool:

16

I too have been taking notice of this thread with interest,
I don’t agree with your take on candles & S/R lines because it
works for me, but the fundamental analysis has me rapt & I
will keep my eye on it.

Also this anecdote should be attached to all computer screens
because it is a warning to all & so very true.

Retrace trades are possibly the biggest number of trades attempted by forex traders. We LOVE to SHORT the percieved top and LONG the bottoms. It’s also been the leading cause of margin call out of any and all trades.

I can remember a trade a few years ago when the USD was pushing hard on the EUR and had barreled through 119.70 down toward 119.20. Being a dollar bear at the time and a terrible judge of range, I went LONG thinking, “It hasn’t been here before! No way it’s going to bust 119!”

Well, it did…and then would retrace slightly at which point I re-convinced myself that I was right and added another lot to my trade. So, one it broke 118.90 I was already 3 lots in and way behind. The USD chose to keep going downward towards 118.50… 118.35… 118.12, “Okay! This IS the bottom! If I go double lots here I can make back some of my negative and hold out for the rest!”

All said, the rally stopped around 117.90 if I recall correctly. But it really didn’t matter as Oanda had protected me by closing out all my postions
As my heart lay sinkin in my chest I thought, “That was possibly the dumbest thing I have ever done…”

I think about that day a lot to keep my head about me when the need arises.

All in all some very interesting posts muddbuddha

PS If we were all alike what a dull world it would be.

17

Candles, Fibs, and S/R all work…there is no doubt about that. They work primarily, with the exclusion of candle formations to a degree, due to the underlying belief that they work - combined with traders inherently placing orders around such areas. So, in that sense, they are a self fullfilling prophecy; but none the less, an effective one.

I apologize if I came off with the impression that I didn’t think them effective. I should have been more clear with my comment.

Now, that brings up an excellent oppurtunity to reinforce a previous statement…[B]it’s not the method, it’s the trader[/B]. So while I believe your statement that they work for you, don’t applaud the method as much as the trader. Your method of trading with someone elses brain may not yield the same results.

While one trader may experience excellent results with S/R while another seems to have none, the same is true with any system or method.

In essence, by utilizing a 20/50 MA combination and trading based on prices reaction around those MA’s, I’m doing the exact same thing as trading with Fibs and S/R.

This is why I will never believe that if a “holy grail” system is shared with too many, it makes the system less effective…which has always been a popular speculation.

The wonderful thing about human beings is that we each crave our own indentity and each of us wants to be known for something different than others. So, even if such a system was possible, all the traders trading it would each trade it differently anyway; and many would covince themselves that the system was actually garbage because their results don’t compare to someone elses, or the all too common, “I can make this even better by adding…”

I’m glad that someone appreciates my ramblings… :smiley:

18

[QUOTE=muddbuddha;28764]
The wonderful thing about human beings is that we each crave our own indentity and each of us wants to be known for something different than others. So, even if such a system was possible, all the traders trading it would each trade it differently anyway; and many would covince themselves that the system was actually garbage because their results don’t compare to someone elses, or the all too common, “I can make this even better by adding…”

Yes!!!

19

Thanks for the encouragement, muddbuddha. I’ll definitely keep practicing.

It’s interesting that you should mention retraces. I recently came across a post by someone who succesfully trades retraces and I was looking at my charts with an eye to trying it.

What I found, though, was that those retraces can be a minefield.

As you said, one would have to pay attention to the daily range, otherwise an account could disappear very quickly!

Terry

20

Exactly. And speaking of, the retrace attempts on Friday [I]DID NOT[/I] work out.
The primary reason for that, though they were at daily range, was that I had not taken into account the level of investor fear in the market that day.

GBP/JPY -178 (Friday retrace)
CAD/JPY -178 (Friday retrace)
EUR/JPY -127 (Friday retrace)

Trusting that traders will come to their senses too soon is just as bad as ignoring the daily range. [B]With all the panic going on, I should have used more discretion.[/B]

That being that, I’m currently SHORT GOLD as well as EURO FUTURES and waiting on a candle close for the EUR/USD. Also LONG DOW Futures.

I picked up some profit this morning…

+155 GBP/USD (Close below the 68ma)
+31 GBP/JPY (Small retrace)
+42 GBP/USD (Break of the LOW)

Currently still short USD/CAD.

You’ll note that the [B]GBP/USD trade was a CLOSE BELOW THE 68ma[/B]. I was studying the charts a little this weekend and was adjusting the MA to account for the small closes and the abrupt re-cross across the 50. Well, after playing around for a few minutes, I realized that the 68 ma was actually a more effective level than the 50. I cross checked it across many charts and feel comfortable with the decision.

The reason I mention this is because it’s always good to evaluate yourself and your method and make small adjustments from time to time. Nothing large…don’t change your tried and true method a whole 360 degrees, just little changes at a time. Also, think about your trading often. Why did you take that trade? What convinced you that it was a good open?

If you traded based soley on fundamentals without considering the technicals, well…that’s just crazy. As is the opposite.:smiley:

[B]The more you self evaluate without overreaction to mistakes, the better decisions you’ll make later on.[/B]