Practicalities and Philosophies of Successful Trading by Goldenmember

Beginner Questions
105

Goldenmember, I appreciate the time and thought put into this thread. I have to say this, as I read through the first 3-4 pages I was completely enthralled with this information. I followed it all the way through and I notice the time span is 4+ months worth of documentation. However, all I got from this was that every current system known to man is pretty much garbage in your book. Others have asked, “Ok, well I see your reasoning for why this indicator or system or though process sucks. So how DO YOU trade?” Without the answer to this there is nothing tying this thread together.

You have said your trading methodology is not mapped out in any traditional manner - I get that. So here is what you do, you stream it live. This way we get a first person account of how you are accomplishing your trades. To add value, you can narrate what you are doing/reading so that we understand what it is you are looking at WHILE you’re actually looking at it. If you are not comfortable doing this, at least video your trading sessions for a week or so and cut them up so we get a feel for them as if we were watching “real time” with hopefully a voice over explanation.

The bottom line is you have excellent trading results for over a years worth of time on myfxbook and the track record is 100% appreciated (in fact verification of success through myfxbook should become common practice). Being able to see you trade real time clears up the murkiness and allows us to gain value from you and this thread. Thanks.

106

Someone on another forum said - enough with your posts! Give us a short summary of what to do! Its just not possible - but I will do my best here, and then I will go back to talking about it (if you don’t understand anything I have written its probably because its something I have worked out that I hope to cover later). This is a cut and paste reply I made since I have to answer this a lot.

It appears to me that people come into this thread wanting it to answer a question they have - and that question is “how do I predict the price/make quick pips using the chart?” My answer is that I don’t predict the price using the chart (I think its a historical record that does show where orders have been, but does not predict whether those orders will be long or short) and this is what frustrates people. So quick answer: I do not predict the price using the chart. Video taping entries will not only be massively time consuming, but will not give any information because I don’t believe the chart predicts price (note that I have been saying this for 40+ posts and 20 000+ words but this concept has still not sunk in because some traders are absolutely fixated on charts and believe it must be the way).

BTW: entry is secondary in trading. Bad money management will lose you money. I am absolutely sure I can go over 90% of retail traders systems and give them a money management plan that will make them 50-100% more money over a year by giving proper money management (btw: signal providers don’t provide this which is why I think signal services are a bad idea).

But since you asked for it, here is a quick summary ‘of how I do it.’

Buying and selling currencies in large quantities is the only event that I believe we can ride. Smaller quantities are impossible to take advantage of consistently because we don’t have an order book and we have a massive disadvantage, and invariably lose if we try it.

There are lots of examples where this occurs that I look out for in the news (you will find this in Bloomberg, Reuters, Financial times). When I see events that leads me in my reading that large quantity buying or selling will occur I will look at the charts.

A lot of the time you will have to piece together different pieces of news to build up a picture or event of significant buying and selling. This requires understanding of how economies fit together, a reasonable amount of intelligence, good memory or record keeping and cannot be summarised in 300 words.

Banks process these major buys and sells, and backfill orders to fill these large orders (stop hunting hedge funds and speculators to fill major client orders). This gives technical entries where I place an order. They do the same on smaller orders but I don’t have a chance with those because their backfilling might roughly be the size of the order and I have no edge.

I believe banks manipulate short term price in a certain way to fill orders at the best price. I place my orders where I believe they will backfill (notice that this is useless or 50/50 without direction because they usually backfill both ways to make money once they have a large order to fill).

I also notice large macro moves in the charts in conjunction with my analysis where obvious accumulation and distribution is occurred by looking at what has been happening over days, not 15-30 minutes (eg: dollar rising, but gold not falling over days means gold accumulation in a consolidated market. Dollar dropping but gold not rising over days means distribution in a consolidated market).

I take profit where I see fit chart wise or fundamental wise depending on the current background, or when I have made enough money.

I also have technical set ups that I have now given over entirely to an automated system so I don’t trade pure technical anymore because chart staring gives zero quality of life (and arguably a low success rate).

I also have numerous rules that I follow about maximum orders at a time etc etc which is the money management part which is the most important part of trading. Entry wise I am event driven as opposed to chart driven (which most other retails are, which is why its so hard to communicate anything - they constantly ask me what I am doing on the chart - that’s not where my work is). I strictly avoid the lay media (even within those publications I mention) because because what they publish is emotionally driven to gain readership not to provide information ie: they frequently publish things that are not true or 95% made up if it will emotionally attract a reader).

107

Thank you for the quick summary.
Now it’s time to go into details.

I want to trade your system , in order to get early into positions when this system says, in order to assure a good movement of price from witch you will benefit also just like me.

108

So if I understand you correctly, you’re searching for news for instance that Toyota will build two new big factories in the US, and thereby deduct that a large sum of Yen will be exchanged for USD. This kind of event is what would drive you to look at for instance buying USD/JPY?

If I understand your approach right, then I’d call you a fundamental trader with a touch of news trading

109

That explains it pretty well. I don’t think I could use your system as it is, it is a bit too different from what I usually do. How to select the right fundamental pieces among the junk seems hard without experience. But still it is interesting and it helps getting new ideas.

110

That news would interest me, but you can’t just look at one event in isolation, plus it would require a bit more of an idea of when and how much they would be building the factory. If they were starting in March 2015 it might not be too important now. However, the reasons why they might be starting to implement that strategy - possibly due to resurgent retail demand for cars in the US may indicate an underlying theme.

[B]Charting Part 9 - Press descriptions of charts and technical analysis.
[/B]
Many articles I have read or which I notice in the corner of my eye have attributed a nature or a personality to a pair. Some have gone so far as to say that a certain pair ‘has a rhythm’ and to trade successfully you just need to ‘feel the rhythm’ of the pair. If you trade well you are ‘in tune with the market.’ Other articles on places such as myfxbook or dailyfx persistently and annoyingly for me have headlines like “EURUSD toys with 1.37.” EURUSD flirts with 1.37. EURUSD magnetically drawn to 1.37. EURUSD dances around 1.37 with caution. EURUSD strengthens its link with 1.37. I consider this total junk journalism. All these articles and headlines are saying is that EURUSD = 1.37, and its almost a game of how many synonyms can you use to produce 1.37. Forex writers have to write content again and again, and end up having to rehash the same old headline again and again and so they change the article heading. This can be extended into descriptions of chart patterns - EURUSD carves out higher high - EURUSD looks upward. EURUSD maintains momentum. EURUSD keeps on the pressure. EURUSD edges upwards. EURUSD ‘heaves up’ EURUSD bursts upwards. EURUSD advances, EURUSD strives for… etc etc. All nonsense headlines.

All of this information can be gleaned from a brief 10 second look at a chart, but it is amazing how many descriptions and headlines can be attributed by the lay press to what is simply the price of the EURUSD being what it is and each description attributes a prediction when all they mean is that EURUSD has gone from 1.365 to 1.37. Do any of the descriptions mean anything? Is strengthens/pushes up/beach-head/encouraged have any meaning? I happen to think that it doesn’t - to me it is a space filler. However, it does not elicit that type of emotion within me. When I read that the EURUSD ‘forges ahead’ or that the EURUSD technically bullish I have an emotional reaction - and that reaction is to think that because I see it in print, that there is a technical reason to be bullish on EURUSD.

Of course, this reaction is entirely NOT what you want to do, because those adjectives are used at random to make the article sound good – they are not well thought through headlines. So what does this have to do with chart patterns? Chart patterns are another fancy language which should be treated no differently than the random adjectives used to describe a 3 digit number.

I was reading an article on a popular forex blog (one of their writers has excellent summaries of overnight Australian speeches which I read) where one of their writers pointed out a double bottom. This was described as a beautiful double bottom that ‘pointed’ EURUSD higher. Naturally if there was not a double bottom, but a lower low, then it would have been described as a ‘beautiful fakeout’ that ‘pointed’ the EURUSD higher (there was an example of another pair where he described just this pattern. And if there was a higher low, then there naturally would have been an ‘uptrend’ that pointed the EURUSD higher. The common theme here is that chart patterns are basically adjectives that can be swapped in and out of descriptions just as ‘pressured’, ‘forging,’ ‘drives’ are adjectives swapped in and out to describe price. Pattern talk is just adjectives and talk – or language used to discuss prices. I do not consider it a predictive element, just as describing EURUSD has ‘pressuring’ is entirely meaningless though it still evokes an emotional response.

In many ways using patterns makes sense to communicate because offering technical jargon or sounding like you know what you are talking about is a good way to provoke an emotional response. And if you are trying to sell something or gain readership, provoking an emotional response is exactly what you need to do.

So I recommend considering media chart talk just the same as all the other talk – it should be ignored and you need to soend time working your own opinion - if this involves turning off forums then by all means do it.

I still use chart talk when describing charts and prices because it is an easy way to communicate. A double bottom immediately places a picture in your head, far better than – the price of EURUSD fell to 1.28, retraced to 1.32, then dropped again to 1.28, and then reversed – for example. But that is as far as you should take it. There will be those people who swear by patterns, However, I have tested several patterns including head and shoulder, double bottoms, and can find no particular edge that they give. They serve only as a colourful description, but somehow infomercials have pushed descriptive language into a far more prominent and predictive position

111

I have recently asked my self the same question. If those patterns are all valid, why there isnt a single explanation WHY do the occur? I mean, it should not be too difficult for expert technical guys to figure this out. So i would agree with what you are saying, however, what do i know, i am just a newbie.

112

A great thread, lot to learn from it.

@Goldenmember: Could you please refer a few resources where one could learn to programme/automate our technical strategies? Do you refer to books, or websites?

Thanks for this thread!

113

Do you have any book recommendations on forex related economics, e.g. getting a better unterstanding of “how economies fit together”?

Thanks!

114

There is a good youtube guide (Jimandy1958) to learn technical programming, otherwise the only other I can recommend is the badly written mql4 guide.
@goldfury - there are a number of free references to learning about economics online through investopedia and the like. They are encyclopedia’s though and don’t do any thinking for you.

115

Great wisdom. Thanks for sharing.

117

WD Goldenmember , at last the crux …"predictive " or "predicting " the bane of trading IMO Qed

118

Thought provoking. Thanks for sharing.

119

Hallo,

To begin with: I’m the first to acknowledge that there are thousands of ways of skinning the forex cat profitably. At the end of the day, it has nothing with being right, only being profitably consistently.

The simple and single explanation why patterns occur and are valid is because traders (humans) are both HABITUAL and IRRATIONAL.

Prices move up and down because HUMANS cause them to move up and down [ based on their interpretation of the past/present/future, whatever the trigger is (whether it’s an earthquake or a interest rate cut) ]. We humans usually react the exact same way given the exact same conditions.

Example: often times, the big money need better prices for their orders [ remember the vast number of forex transactions are a function of international business, not for mere speculation like us retail traders ]. So you’ll often see at key levels price being pushed in one direction (triggering stops along the way which provide the needed liquidity), before whipping back in the opposite direction and chugging along. That’s how pinbars, engulfing bars, etc are formed. Double tops/bottoms are often formed when big money need extra fills for their large orders at better prices (that they couldn’t fill at the first go). And so on and so forth…

.

120

I don’t really agree with the whole statement, although this appears to be a very popular theory among trading schools - and if you are making money of it well done to you. I think patterns are a retrospective look and a biased appreciation of something that is inherently unique (like seeing and attempting to predict patterns in snowflakes - even though every one is unique, or seeing patterns in the numbers drawn in a lottery and using this to see what numbers are drawn in the next round). However, I’m not going to spend time arguing about it.

[B]Charting Part 10 – so why are charts useful?[/B]

Despite all my negative talk about charts, believe or not they do have uses, because they are an excellent tool for visualising price and saving you time and effort. Charts represent the current price. You can see areas where orders are likely to be. You just don’t know how many are there, or whether they will be pulled. You can also anticipate stop losses and breakout orders. To make use of this you need to know overall direction unless you are trading.
Charts also demarcate very handily the time of day. The only useful time reference I have found are the European/London open, the New York Open, and the Tokyo Open. Other time references whether they are 4 hour charts or daily charts are not really that important because they artifically chunk time. There is a real opening and closing of important equity and money markets in London and New York and they do affect prices. There are also some people who state that the London Close is important, as is the 3pm options expiry time, and the various fixing times for commodities. However, to keep things simple, at the moment I will talk about is that the chart illustrates the various opening times, and it also shows current price and the highs and lows of the session.
All this information is handily available to you on a chart, and you can place as many lines, and pivots as you like to help you mark out areas where you are choosing to pay attention to the market.
You can get the same information from looking at a price ticker that illustrates the high and low of the day, and have pivot points and areas of likely orders written down on a piece of paper, and this is how the pit traders of old used to trade. They merely watch for price to hit the level on the piece of paper and then excitedly bid/offer, and then offload for a few pips or points.
I use charts to mark out areas of interest that I would think that would be reasonable places to buy or sell. I base my decision to buy or sell not on the chart, but on my understanding of the market. If I didn’t have charts, I would be very much like the pit trader (and in fact what I did in shares) which is just to pick a level in which to bid. Although patterns do appear they do not predict anything for me. The appearance of a chart ‘pattern’ merely points out to me a likely area where orders reside where I can place my sell order or buy order that I have already primed.
Exactly where to place the order is far less important than the direction where you place it. After all, if you buy and have to wait a few days and you are in profit (as long as you don’t drawdown to much) to your satisfaction you have still made money. This all comes down to what I said previously about trading not having to be perfect and to be about making money. Of course I do not mean that you should drawdown 50% to make 0.5% on a trade because that’s not really choosing the right direction or managing your money in a sensible way.
A lot of traders are fixated on exactly how to place their order, but it is of secondary or tertiary importance behind money management, and direction. I will come onto placing orders, but to understand why I place orders where and when I do, its important to understand how the market works to understand how stop hunting works and that is what I will be coming onto in the next few posts.

121

Thankyou for this thread. Looking forward to your thoughts on how the market works and stop hunting works. I can see that banks need supply and demand when clients need to convert currency to buy hard assets. thankyou for your great posts

122

[B]What is Trading - the basics before you get into how do I get money from it[/B]

In a lot of trading manuals, and online manuals there is an extensive amount of information of what the foreign exchange market is. However this information for many traders is lost in the time they take to learn about trading, and when they are swamped with technical information on how to trade and the various divergences and candlesticks. None of this is as important as understanding the basics of the market and how trading affects price. I am sure that people will immediately have a snap judgement and say “Of course I know how the market works – its supply and demand,” again without really knowing what that means or how it works. So, if you want to learn further, throw away your preconceived notions on what you need to know and just play along.

Firstly trading has been around for millennia, and has several purposes. A caveman might trade his food with another caveman for furs for example. Or he might trade it later on when it is cold for less food because the other caveman wants to keep his furs. Or he may trade it later on when it is warm and food is scarce for more furs. In this case, the trade has a purpose – to gain furs to keep warm and for protection. However the caveman might have more food than he can consume and he just wants to buy furs because he can, or because he is stockpiling furs to sell later on. In this case he could be considered investing, or even speculating. Note that the other caveman cannot do the same with by speculating on food because food is consumed and spoils quickly as opposed to furs (which don’t smell as fresh but can be reused).

Trading extends to almost every other possible commodity and service on the planet. Not only stocks and shares are traded, but insurance premiums, shipping, bets, domain names and much more. When you call your insurance broker to renew your car insurance, the broker on the other side is trying to get the best price on the market for insurance cover while making a mark up. When a storm is forecast, then the demand increases. If you are looking to send a parcel to Australia, then the parcel company will try and buy shipping. If there happens to be a lot of demand for parcels to Australia, then the cost will go up, and the cost will be passed on, or the margins for the parcel company will be cut. The betting industry regularly lays off the risk of its bets with other bookies and is very close to the stock market and the forex market in how it is structured. Also note here that shipping expires as does insurance and is taken out of the market, but again this is something we will cover later.

In the examples of shipping companies and insurance brokers, insurance and shipping can be traded for consumption, or it can be speculated upon. For example, a web hosting company can buy up domain names and speculate on the value later, or it can actually buy the individual domain names that the customer requires. Both are a valid way of making money.

Lots of people hate trading, hate speculators, hate the market, but whatever you do, you are participating unless you live off the grid in a log cabin and hunt for food. Buying anything makes you an end receiver of a contract for delivery.

123

[B]Forex Vs other forms of trading[/B]

I have always related trading forex to trading shares, or trading anything else, and it’s worth realising that the principles of trading remain the same. You buy something that you think will increase in value compared to what you are exchanging. (Remember, when you are shorting, you are buying the base currency, so short or long you are buying something vs something else.) If you think like this ‘trading’ loses some of its mystique because you break down the reasons for trading into reasons to buy and sell. (Of course, at present I am talking about discretionary trading, not automated or technical trading.) When it comes to trading I don’t buy or sell if there is no good reason. Even if price of a currency moves if there was no reason that you can see for buying, you shouldn’t feel bad that you missed out. Of course, its possible that you could have made money, but the likelihood that you won’t and you are wholly gambling. The best analogy is just buying $1000 worth of Furby’s hoping to sell them at Christmas. Unless you are an expert, or know where you can offload them for a profit, then you are very likely to lose money. So a lot of my time is spent researching possible avenues to buy. There are a lot of reasons and ideas out there (tonnes from the blogs which say the Euro is urging etc) and it’s up to your own knowledge to find the ones that make sense.

A blog poster might tell you that Furby’s are a great buy (of course they probably have their own agenda), but you need to make up your own mind and do your own in depth research. If you ran a business then this would be expected - you need to research your product and your markets. For some reason, retail forex traders omit this - my own personal experience (and from what I have learned from some people who have contacted me) is that retail forex traders are lazy. They don’t want to research Furby;s manufacturers, buyers, shops, customer demand, competition, postal costs etc. They prefer to have a line representing the price of Furby’s and click buy or sell based on a few lines and to make profit easily. Imagine if the same attitude and aptitude was really applied to a business. Of course, this is what brokers want to encourage - ‘the make money from your armchair’ business.

Let’s bring the example closer to trading forex. Instead of researching and trading Furby’s, you are researching and trading shares in coal mining companies. You can look at their profit forecasts, work out how realistic their valuations are, and look at the competition, as well as looking at the market for coal and invest in a company that has excellent forecasts. Every purchase or investment you make should put you in the position of one of the Dragons in Dragons Den (or Shark Tank). Imagine one of them was sitting in the board while you sold your pitch about the company (or even the Furby company) Is this a good company? Is their managing board competent? Have they got a realistic valuation? Are they worth your investment? Or you can decide to stand up and advise to invest using a few lines and candlesticks. It doesn’t take much realization to know that you will be laughed at by Duncan Valentine and Peter Jones if you try and convince them to buy your coal mining company because of a ‘green hammer on the daily chart.’ Note: Any investment board misses tonnes of opportunities, and there are some successful companies that have been rejected - but they have avoided a lot of ‘lemons.’

In the same way you can have a high win rate in trading anything is to actually spend time doing the hard graft of research and learning. Yes, it sounds horrible - nightmare - who wants to read the entirety of the Fed minutes - it’s a whole 6-8 pages of text when you can just look at a long wick on a hammer and spend a leisurely 30 minutes watching Family guy online. Who wants to read the profit statements of a coal mining company and compare it to the competition when you have to look at boring tables and take notes? Much easier to buy a ‘double bottom.’ But doing the work is business, and it is trading successfully - the latter is in my opinion a lazy man (or woman’s) business plan and is doomed to failure (automated and lengthy backtested methods obviously excepted because these are business plans in themselves).

124

[B]Supply and demand
[/B]
Ask a man on the street about economy and they will probably slip “supply and demand” as a catchphrase. Even the war on drugs is explained away by “supply and demand.” For example, the lay press or media (and thus a man on the street) might say that drug users are encouraging drug producers and drug gangs and subsequent murders and gang crime. Therefore a cannabis smoker is responsible for the death of some underprivileged family. I’m not going to go into it too much, but it is not that simple. Demand does not directly lead to supply. There might be hundreds of millions of people who want the cure for cancer, but it doesn’t mean that it is in ready supply. Demand does not lead to supply. Quite equally, and obviously, supply does not lead to demand, although some lay people might imply this when they eloquently rabbit “supply and demand” when talking about economics.

How I see it is that demand or willingness to pay increases the price of a commodity because a party is willing to go through a transaction at a higher price. The more the person doing the demanding is willing to pay, the higher the price the supplier can offer. If the demand is great, but the demander is unwilling to pay more than $1 (lets say through a trade union) then the price will stay the same. This extends to insurance, shipping, etc. The fact that demand only affects price is very important. For example the demand for torrented movies and albums may be huge – but if the demanders are unwilling to pay anything (which is normally the case when people torrent intellectual property) then the price will not increase and the supply will not increase. In fact, in the case of the record industry mass pirating caused the price to reduce and for record labels to sign less musical acts in effect reducing supply.

If we look at the reverse angle, is supply going to affect demand? For instance, is having 1 million extra copies of a film going to increase demand or reduce it? The answer of course is that it depends entirely on the price. If the price that the supplier is willing to supply at is the same, then the demand will be the same. It is only when the supplier is willing to lower the price then demand will change. If the price is lowered enough, then the ‘demand’ may actually increase even as the supply increases.

The idea that ‘its just supply and demand’ is inherently wrong. It would be more accurate to state that supply, price and demand are the cornerstones of the market. Excluding knowledge of the price that the participants are willing to pay makes supply and demand an incomplete concept.

Where supply and demand are met at an equivalent price is sometimes termed ‘fair value’ (although again, I do not like this phrase because it implies other valuations). Whenever price stops then it can where supply has met demand at a certain value – this is the nature of a transaction and trading. If the price differs from supply to demand then the price will change.

So as traders I am looking for those occasions where supply and demand will differ significantly to cause a price movement that we can speculate on and make money - and this information is not exclusive to candlesticks, trendlines or support and resistance lines.

125

I appreciate your posts, goldenmember.