One thing that I think is always true, is, the more knowledge you have, the more capability you have to make money. Lack of knowledge is often what causes people to lose a lot of money. They come into trading options, don’t know anything about them, take a lot of risk, and there goes their money. What you’re saying makes a lot of sense. You understand oil trading, and have been successful at it, and you can use it to trade the Cad. Personally, I tend toward the stock market, and a more pure technical analysis has worked, and makes it so it is not that difficult to make money, if you have a good risk reward in your trading. So, how do you trade oil, and then, use that to trade the Cad more successfully? Do you use technical analysis for oil, or do you use a system of fundamental analysis to try to judge supply and demand levels in oil?
@mtb_rex, to be honest, at this point I don’t really have a regular schedule. I find that when I’m committing more time to reviewing charts and reading posts on BP, I’ll be looking at charts before I head to work, maybe 20-30 minutes, then peek at them during the day at work (3-5 times a day, 5 minutes), and then if I’m really making the time, again in the evening. Although the day of the week hasn’t (that I’ve noticed) made a huge difference, I find that more is happening early in the week.
So it sounds like we have similar struggles.
@brmicha, I really love your quote about knowledge. Applicable to ones life in general, and in trading. Just this post has me feeling like I’m going to start making more time again (been slacking).
On the topic of oil and CAD, I’m aware of the relation between the two, but haven’t spent any time (yet) learning about oil and what makes it move.
Great conversation!
I have taken this from Investopedia for you: “When oil prices are high, the amount of U.S. dollars Canada earns on each barrel of oil it exports will be high. Therefore, the supply of U.S. dollars flowing into Canada will be high relative to the supply of Canadian dollars, resulting in an increase in the value of the Canadian dollar. Conversely, when the price of oil is low, the supply of U.S. dollars will be low relative to that of the Canadian dollar, resulting in a decrease in the value of the Canadian dollar.”
As for the way that I trade oil…I use technical analysis for entry and exit points on my trade, fundamental analysis for direction of my trade.
If my trade is running successfully, I will then open my CAD trade in the same direction as my oil trade.
if my candle hits my take profit and the candle is still going in the same direction, can i still place another trade?
Yup, trying to get an hour in on Sundays to review at least the majors if not more pairs, review trends, support and resistance areas, MAs and some candlesticks. I need to make it routine to have any chance of making it a habit.
So, you remember I was talking about keeping and open mind, and learning about new stuff. Here is a completely different kind of system using stock options. It’s focus is on risk to reward ratio, and is not concerned about losses. Of course, there is no guarantee that it will perform in the same way it has in the past, as usual. But, it has been functioning well for the last 10 or so years. It will take some research on options and stock charts to more understand it. I am trading on the IBM stock. I trade the day after it’s earnings comes out, and I only trade if there is a gap, which happens most of the time. After earnings, implied volatility on options is high, and over time, it gradually decreases, generally. Higher implied volatility equals higher option values. Lower implied volatility equals lower option values. I want to use implied volatility to my advantage, so I sell options. This means that implied volatility is working against the person who bought it from me. If I am trading up side, I sell cash secured put options. If I am trading down side, I use bearish put spreads. I never sell what they call naked options, as that it just insanely risky, and I don’t much like risk. The day after earnings, I enter in the direction of the gap. After the day is over, if it is up, my risk is at the low of the candle, and vice versa if it is down. I hold the trade up to about 2 weeks or so before the next earnings. That’s when implied volatility generally starts to go back up for the next earnings. I may sometimes end the trade early, or protect profits, if the trade is winning and has a very good risk to reward ratio in place. I’m looking for at least a 1 to 10 risk to reward ratio. Over the last 10 years, this has been winning about 50 percent of the time, maybe a little less. It’s risk to reward ratio is between 1 to 10 and sometimes up to 1 to 40, occasionally, it has even been up toward 1 to 80. This means that it could make money even if it only won a very small percentage of trades. it helps to re-enforce how important risk to reward ratio is to one’s trading. it is all important, and the most important aspect of your trading. If you think about it, it doesn’t make much sense to consistently trade with high risk and little reward. Also, since I am holding for toward 3 months, I do options that have at least a month more time on them than that, since I don’t really ever want to own any shares.
After @brmicha’s long post, I feel mine may be a disappointment… but, in the interest of being consistent, I’m posting the latest trade(s) that I entered/exited:
Trade #9: Short EUR/USD : Was profitable. I closed with 260 pips. I felt that the price would continue to move down, heading towards the lower end of the descending channel, but also felt like I wanted to take my profits. So, I closed out Trade #9, and headed into Trade #10: Short EUR/USD, betting that is would go down further (see below).
Ended up being a 1 day trade, cashing out before our Victoria Day long weekend (Canada).
I have new ideas to present to you guys. I like to trade the stock market index futures. I often trade the Nasdaq futures. The three indexes, S&P 500, Dow, and Nasdaq are highly positively correlated. I am not sure of their exact correlation, but let’s say that they are 80 percent positively correlated. I watch all three indexes at the same time. I use a simple method to see what the trend is of each. Now, if the three are 80 percent positively correlated, does it make sense to trade in a direction when they are correlated? If so, you would automatically attain a built in 80 percent probability in your favor, since they are 80 percent positively correlated. Another example of this sort of thing is, 80 percent of all options expire worthless. If a trader buys an option playing a directional strategy, there is so much time that it has to move or else the option will expire worthless. If 80 percent of options expire worthless, in a sense, there is only a 20 percent chance that the person buying options will not have their option expire worthless. However, if you sell options, this concept can work for you, and you can get a built in 80 percent probability in your favor. Of course, selling options can be highly risky, so if you look at doing that, be careful. Now, I look at the VWAP, which is the volume weighted average price. The VWAP does not exist for Forex since the volume is meaningless. But, it is a pretty nice indicator for futures where volume is real. The idea is that it gives you a simple way to say, if the price is above it, it’s momentum is up. If below, it’s momentum is down. Of course, moving averages lag. But, this is a fairly nice simple way to see if the indexes have the same sort of momentum. This morning, they were mixed up. The Nasdaq was above. The S&P 500 and Dow were down. The Nasdaq turned over downward, and headed toward the VWAP. It moved with fairly trend like characteristics. The Dow though was moving very side ways. It was a difficult day for me to find areas where I wanted to enter. Last Tuesday, an uptrend formed. All the indexes were above. All of them showed trend characteristics at the same time. They both broke out upside, then, retraced, and stayed above the previous resistance. The both showed upside strength. The result was a long term up side trend that went on all day. Sometimes, you see the Dow and S&P 500 take off to the upside. The Nasdaq has hardly moved. Often times, you will notice that it somewhat ends up catching up. Now, let’s take something more in the Forex world. UsdCad and OIl are highly correlated. Can you use that correlation to your advantage?
Another example. Yesterday, the Nasdaq was falling and had down trend like characteristics. It formed a double bottom. There was a bullish engulfing candle. The Dow and S&P500 had not matched with the Nasdaq down trend. The Dow was driving up hard. I went long in the Nasdaq, counter trend. This is not a position that I would hold long. It is a position that I will set up with a tighter stop loss, and I will set up to take at least twice for the win than the loss. I also use the floor trader pivots. They talk about about those in the school of pipsology. The Nasdaq had moved below the pivot point. I targeted the pivot point as my ultimate profit target. Normally, I use pivot points as ultimate profit targets. They get hit a certain percentage of the time, and seem to have more probability than you might think. I broke the trade even in and locked in profits in a more conservative way than I do if I am trading with trend. It went up and hit the pivot point multiple times. My trade was over. Then, all the indexes turned over and went into a big down trend. This of course, shows the danger of trading counter trend and how it is higher risk, so it ought to be managed like it is higher risk.