I just wanted to drop by and say HI goldy. I see you been hard at it. Happy new year.
Itâs always good to be up front and aware, so thanks Golden for the post.
Iâd guess that most of you are aware that this post is a paste of the same post on FF Dec16 in the commercial content of their site.
Does not make it any less relevant, but itâs nice to know these things.
Fundamental teaching from a profitable trader - Page 3 @ Forex Factory
insightful reading, thanks goldenmember!
[B]Identifying Supply and Demand[/B]
The market just happens to be the place where we trade. For insurance this can be online at a broker, or it can be at a supermarket that sells insurance. We can buy shipping at the post office, online, or via a corner shop. We can lay bets at a bookies or online, or we can lay bets with our friends and work colleagues. There is a physical place where we are trading the insurance, the shipping or the bets. This physical place will pass our trades onto the market or match our requirements on their own books. When we are trading stocks and shares, we are trading through an intermediary broker, which again either trades it on their own books or passes it onto another broker, or the centralised stock market. For many of us, it happens to be the forex market. I donât actually think that it is the optimum place to trade for many different reasons. Certainly there are more predictable markets, more volatile markets, and markets that are just as leveraged.
When you are looking at a market, any market, remember that you take a look at opportunities. You can make money trading technically, and I have assessed that most technical methods will net 1-2% per month with a x10 drawdown (means 2% per month will require a 20% drawdown expectation give or take a few percent - if it hasnât reached this point then it hasnât been traded long enough - psychological factors, pressures, overleveraging and expectations cause accounts to blow up). Or you can look at areas where there is clear demand. This requires you to look at the prospective investment critically as an investor. Be a smart investor who asks questions and makes the correct investments as opposed to a dumb investor who places his money without any idea why he is putting money down.
You should look at each trade you make as a trade you would make as a businessman. Itâs a huge cliche of âtreating trading like a businessâ and most people just cram that on the end of their informercials. But have you thought what really treating trading as a business actually means? It actually means that you should work out how much your operating costs are on a trade, and how much you can potentially make. Risking your entire account for â5 pipsâ is not really a sound business decision for example. Imagine that you ran a electronics business. With 100k of capital would you risk 100k to make 1%? Put this another way: would you really buy $1000 worth of electronics to sell them at $1010 on ebay (minus fees)? Of course this is a bit of a broad view - if you definitely knew you had a buyer for your electronics at $1010 then itâs a reasonable business decision. But if you are uncertain who is going to buy then it is a bad decision. For instance you could look at someone buying 2 playstation 4s pre order. If they had a reasonable guess that the preorders were oversubscribed, and that PS4s would be a popular in demand then its a reasonable business decision. But if you were buying something you knew nothing about, or you were just buying because a blog told you its a good idea then itâs a poor decision.
Relating this to trading oil, currencies or anything else, you need to identify opportunities. Letâs take oil as an example. Most people know why oil is in demand. Traders should also know the main producers. If you knew that oil was produced in which countries for what price you should know essentially âthe low.â Of course price can fall lower than this (such as it did in 2008) but if you are buying oil at a lower price than it costs to produce then you are making a reasonable deal. Of course you still must use stop losses (which are essentially your investment) but you can be reasonably sure that you will make money. I notice that a lot of traders are critical of âhold and hopeâ but the reality is there is a difference between holding a good trade (ie: cheap oil under the production price) and holding a bad trade (which many signal followers donât understand). Other than this production price for oil you can also find other opportunities. One example is the USA military, large airlines, shipping companies, oil fired power stations. Oil pipeline leaks, increased driving habits and many other factors are real world changes in supply and demand. Notice that none of this not mentioning pin bars, engulfing patterns, stochastics, support and resistance or anything else.
[B]Recognising supply and demand Part 2
[/B]
So how else do you recognise when something is in âsupplyâ or âdemandâ? Forget about currencies, forex etc, and just think about the basics and how you would recognise it in simpler everyday products. How about Sony Playstations and X Boxes. Or Apple products or jeans? If you decided to walk into a shop and looked at how many Sony Playstations were on the shelf or whether there was a sold out sign, you would have a good idea. Same with Apple products and jeans - if there are massive inventories or if you have to put in an order because they are sold out, you have an idea of demand. Price of Sony Playstations and jeans is very much a secondary indicator, If the retailer discovers that within a week he is only shifting one pair per day, or one playstation every other day, he is not going to immediately discount it down. Most retailers will give their products some chance before they discount it. It may be a month, half a season, or even a full season - but importantly, the price doesnât immediately tell you whether the pair of jeans is in âsupply or demandâ - it is the fact the shop is full and no one is buying or everyone is buying that tells you this. For all those âprice action gurusâ that claim price is a leading indicator, does not lag, and only price tells the truth - I would look at real world situations and ask yourself - can I tell more quickly if a pair of jeans is in excess supply or demand by a) looking at the price tag or b) walking into a few shops and looking?
And secondly - does the price tag on the jeans indicate - whether the jeans are in excess supply or demand, or does it indicate other pressures on the retailer - perhaps they did not buy enough jeans, or perhaps they did not have enough time to shift out the cargo pants - maybe this will cause a price adjustment?
There are other indicators of supply and demand as well for jeans. Is it in fashion? Is the media raving about them? Does your significant other already have a pair? Are people wearing them around work? In the case of the new XBox, are your friends having Xbox parties? Are they discussing the new game? Or do they have no interest in it at all? The lack of interest/interest should be apparent before the retailer slaps a 20% off price tag on the machine or even before X Boxes are being resold on ebay for a 50% mark up.
So how does this relate to trading? First of all, we can relate this to shares (this is less of a leap) - letâs talk about companies. Many companies produce products. And selling these products/services will relate to profits. And increased profits can lead to increase demand for shares. Lots of steps, but you can see how the basic footwork of seeing demand or massive unsold inventories can tell you what is going to happen well before the earnings comes out and well before a âcandlestickâ is formed on the charts.
i like your **** a lot, teddybear, and i mean a [B]lot[/B]
but buying on supply and demand is for people who already have a certain capital to spend without the need for leverage
forex is about the leverage, otherwise you could just buy a currency and sell it later
do you have more vision on how [I]this[/I] particular thing in the wonderful world of finance works,
please
You can get leverage in almost any market not just forex. Trading is for people with a certain amount of capital (as is any business) - if you donât have the capital then there are better ways (such as minimum wage jobs, weekend work, nights spent as a security guard/hospital porter etc) that are more efficient ways of getting the capital before you start trading. You canât really just buy a currency and sell it later at a bank because the price offered at your local bank is very different from the spot price. I think the latest price of the GBPUSD at my local bank was 1.72, whereas spot is currently 1.66ish, whereas switching USD to GBP is at the rate of 1/1.6 which is a 1200 pip spread for real money transactions compared to 2-3 pips offered at most brokers.
Iâd like to talk a bit more about stock trading and share trading. Incidentally, trading stocks and shares is a lot more popular than forex - which very much seems to be a niche for trading obsessives who want a 24 hour, 6 day a week fix. If you donât like the constant day to day action of forex, you might be better off looking at shares. I was speaking to someone the other day about why forex was so popular, and one of the reasons that I noted it was so popular was that currency constantly appeared to go up and down or basically range bound. For many people this is a great advantage - given enough time the price would likely come back, and you could never fail to be right. You donât even need to research or do any work or reading (who wants to do that!) - you just buy or sell and wait⌠Until it goes wrong!
I thought about this habit for a while, and many retail traders like markets where they buy low and sell high - but essentially what they are doing is buying or selling something that they think is going to be the same valueâŚ
Apply this to shares for a while (not leveraged shares, just buying whole shares). Imagine buying a share at $50 a share, that you thought was going to stay at $50-55. Sounds vaguely ridiculous especially when you consider spreads and commission - but that is what many retail forex traders like to do with currency. There is money to be made doing this, just like there is buying a share at $50, selling it at $55, waiting for it to fall and doing it again - but is there a better way?
A lot of people buy shares for a long term hold. They buy at $50 and look for the share to appreciate to $70, 90, 100 and beyond. They look for many reasons to do this. Perhaps it is a stock tip they read. Perhaps it is their own research. Perhaps they have some inside information on BlueStar Airlines! But people are looking for a compelling reason for a stock to appreciate. Of course, there is the risk that the company could fold, or never go anywhere - and the stocks become worth less than they paid for them. With currencies and forex, it is my thought that people seek to avoid this risk - because currency goes up and down - you also donât really need to find a reason for something to appreciate - again because it goes up and down. It is time consuming to find shares that may go up, and much of your time will be spent researching stocks that you ignore - and who wants to do that when forex is going up and down 24 hours a day! You also need to look through a lot of different websites - and who wants to do that when forex trading only requires you have one website open! (note: I donât think this - its a lazy, ADD attitude that leads many people to trading forex).
But if you want to trade fundamental trades you need to look for these reasons even in currency trading.
I was watching âFlooredâ the 3 year documentary into the CME which was an eye opener about how trading used to be. Worth watching for anyone who is sitting through an otherwise dull day - you can find in on youtube and watch it for free. I thought I would comment on it because it was a bit of an interesting topic, and an aside from what I have been writing (which no-one appears to read anyway boohoo) and it allows me to comment on the change in trading.
What really interested me was how pit traders used to trade and how relatively simple to what it is today. I am not saying it was easy, because it appeared to be a very physical and demanding job where you really had to be very decisive and get noticed when you took a position. What many of the pit traders appeared to do was scalp for a few ticks. Although there were probably people who held for long term trades, the majority of traders appeared to be on the floor to catch a few ticks of a move and then they would leave (and go and spend it on cigars). Trading this way seemed simple - when there was a big directional order, pit traders would buy or sell with the order in a chorus of buying and selling. Identifying buying and selling would be easy - it simply was a person who was taking up offers left, right and centre. Orders would be relatively slow to be filled - each order needed two people to physically acknowledge the sale - I say relatively slowly - in reality this probably took seconds, but compared to today it was ultra slow. This allowed the movement of price to reflect what buyers and sellers were doing - because a big buyer would take time fill an order of thousands of contracts, and on the pit you could see and hear what the market was doing, and see the market reflect this tick by tick in a relatively slow manner. Of course, with the pressure, people shouting and pushing it would have seemed fast and chaotic, but the speed allowed traders to manually scalp ticks by hand gestures.
So why did this interest me? I have long wondered what âprice actionâ was and why it is so widely taught, and I think that I have my answer. On the pits of 1980s , 1990s and even into 2000s, price actually reflected the buying and selling - because price would go up as a person was buying and filling his order one by one by manually acknowledging it on the floor. This was âprice action.â However, with the advent of electronic trading, the pit trader lost his edge. The best pit traders would be the ones who could react quickest and get themselves noticed (while having good money management) but none of them could beat a computer for speed. So instead of a buy order of 10 000 contracts being filled 100 contracts at a time with a chorus of buys and sells and frantic running around by the clerks and taking ages to fill (and the corresponding price going up relatively slowly), electronic trading allowed 10 000 contracts to be filled almost instantly. The price would bump up 20-30 pips within a second (less time than someone could shout buy or sell) and there would be no room to scalp. ie: there was no more price action. The only âscalpingâ that could exist is HFT algos that front run the large orders, but this would not be humanely possible (nor possible on a retail platform with the delays that exist) to react in time. Hence this meant that the âprice actionâ which the pit traders used to do didnât work - much to the disappointment of some of the traders in Floored.
Hello goldenmember,
I am glad you decided to update your thread 
Ive watch that You tube video âFlooredâ. I think it was Mr. R Carter share it to me on my old thread. Yep, it is really interesting how trading use to be as it is right now. I guess there is always pros and cons to any changes. Hopefully it is more on the advantages side for us than the disadvantages. As the market keeps changing, though the principles still the same, the only thing we could do as retail traders is to accept those changes, adapt, be flexible, and always find ways on how we can improved our tradingâŚthats the only thing we could do to survived.
Thank you for providing your input and your own perspectiveâŚ
Hi I think youâre being too humble when you said no one appears to be reading what youâve been writing, I, for example, am one of your readers whoâs been keeping quiet. I believe there are many others who just browse through forums, taking in what they feel like to read and learn and just being quiet.
I think itâs amazing that youâre willing to spend the time and effort to put your thinking across through so many words! Being active in forum takes a lot of time, thereâs just so many to read, so many opinions, so many ideas, let alone respond and typing posts. Which is why I must show my appreciation to you. Please keep it going.
About the âFlooredâ you mentioned, I havenât watched it yet. Upon your recommendation I shall make the time for it. I couldnât help but to mention a book I read: âPit Bull: lessons from the Wall Street Day Trading Championâ by Martin Schwartz. I dunno if you read this book but the author talked about his broker having a big, fearsome looking guy to be on the floor to get his orders across which is quite hilarious but also very true cos thatâs how chaotic it was in those days, everything was very physical and verbal. Thanks to the technology nowadays both genders stand equal chance in retail trading world.
[B]Maintaining your own ideas.[/B]
I thought I would write how important it is when trading to maintain your own ideas, trade when you have worked out it is right to trade, and not when someone else tells you to, or not to do. Is it just me, or are there more and more expert traders blogging these days? I am increasingly believing that their opinion is toxic. In reality, there are only a few opportunities per week that I feel that the retail trader has to trade. Everything else is ârandomâ or beyond the information a retail trader has. Sure, you can trade everything, but trading without information (technical or otherwise) or incomplete information is just asking for trouble. I think that recently (over the last 5 months) the market has been incredibly forgiving. Every move is faded within a few hours if not minutes, and buy low, sell high strategies looking for double/triple/quadruple tops and bottoms have probably yielded brilliant results. There are occasions believe it or not (especially new traders who may not believe it) when pairs used to shoot 200-400 pips a day on a regular basis. Fading every 10 pip move was a sure step to suicide. But, anyway, I am going off topic - I was talking about information being toxic because it switches you away from your ideas and thoughts. Some traders call this psychology, but really it is a matter of prioritising the technicals, news, events etc. You can do this on paper or in your head. For instance you can assign a very low priority to people rambling on forums, but a high priority to your well worked statistical system. Some traders choose to shut everything out, and it helps them - but I find that I always need some outside information as I donât deal solely with the chart. It is good to set out a plan for the week to say what you will listen to, what you wonât listen to. For instance, I only listen to news that appears in print on reuters or the BBC - I pay no regard to âmarket rumours.â I recall quite recently there was a large currency movement. I wasnât in the market at the time, but I noted the market movement, and looked at talkingforex - they attributed the move to a touted Vladimir Putin emergency press conference. I searched the BBC, reuters and other reputable sources and there was nothing. The only place that came up in searches was forex blogs! Of course, when the time of the touted emergency conference occurred, nothing happened, and price settled. You have to wonder how much absolute rubbish is pumped deliberately into the market exclusively for traders. If anything, I think the internet has made trading more difficult because whereas traders used to get 2 pieces of important news a day, they now get 100 pieces of distracting rubbish, from which they need to isolate the 2 pieces. This makes it less likely the trader will choose the correct piece of data to act on, and more likely that they will act on irrelevant or false data. Add to this the bewildering amount of technical trading signals, then traders now get 100s of entirely useless (in my opinion) opportunities to trade and to get it wrong which makes finding the actionable opportunities more difficult. Unfortunately the industry that has sprung up around trading is built to encourage rapid turnover and thoughts of get rich quick (otherwise how would they make money from affiliates opening new accounts, or how would they get people to attend their new teaching course!).
On that note, I would like to say that I have started to withdraw from my personal account as I have had a lot of interest in managing accounts - I would also like to add that it has taken me over 3 years to get to this point! For anyone thinking trading is easy - I started my main account with 11k, and am only now 3 years later able to withdraw enough for a living from it - it might be an eye opener to those thinking that they can make it big with small accounts, or people thinking that they can quit their jobs, or even put off looking for jobs.
Great post - I agree to certain points as well.
Personally, I like to maintain my own trading ideas, but I am always open to suggestions and take everything that people say with a grain of salt.
I will never automatically enter a trade just because someone else has provided a signal or said that itâs something worth trading, because that is effectively putting my money is someone elseâs hand and asking them to gamble it for me.
You should down your own chart study, analysis and use your own judgement to push the odds in your favor.
I think the problem is that there is so much information and opinions out there, if you listen to everyone you will make mistakes. For instance if you ran a business and listened to every piece of advice on the internet (with none offering more authority than the others) you would make a load of bad mistakes. Anyway - I wrote a long piece for another forum, and I thought I would add it here because otherwise its 1000+ words wasted!
I have been asked quite a few times, what is my system, but the truth is that I donât use a single system. Trading is discretionary, and I use several systems, or set ups or situations which I think give a good return. All of these systems and methods are not useful if they are overleveraged or if there is no trade management. Moderate returns and managing trades is the way I have been able to perform in the markets.
So what are my methods and systems - I will talk about them in a general overview since they discretionary and require experience to be able to discern them. They are not buy a candlestick or buy a 61% fib line. I will list them:
[B]Method 1 - Event based trading[/B]
Event based - there are plenty of events that cause large movements in the forex markets. So what do I classify as an event? I think of a series of events and rationalise the effect that they would have on the market. Several examples - US entry war in Syria would cause a rise in the price of oil because of military use. Reallocation of the Japanese pension fund would cause the yen to be sold to wherever the reallocation takes place, purchase of Astrazeneca would cause a reallocation of funds, nuclear plant building in the USA would cause another reallocation, as do earthquakes and natural disasters. This differs from events such as high unemployment, or weak retail sales which are essentially economic indicators rather than an event.
[B]Method 2 - Unexpected economic events[/B]
A lot of traders watch the calendar and try to trade it. I once backtested through the economic calendar for several months and marked how often the price would go up or down 30 pips based on a better than expected or worse than expected result. The result was 50/50. Whether it was green or red (better or worse) half the time it would make the price go up, half the time it would make the price go down. This indicated to me that there was no point in trading these events as they did not predict price in isolation. The only way to predict the price with any degree after a calendar result is if the economic event differed significantly from expectations. The expectations on the calendar and provided by analysts is often obviously far off if you look at other economic data.
[B]Method 3 - Pure technical support and resistance[/B]
There are a lot of methods to draw support and resistance - what I have found more effective is to only look for areas where the support and resistance is significant. M15 charts and M5 charts are not significant for me, although I am sure they could work. I donât predict price (ie: it will go from 1.34 to 1.36 and then retrace to 1.3560 and then complete wave 3) but I just trade the reaction from pure technical support and resistance if it is significant for a smaller amount of pips.
[B]Method 4 - Combined technical support and resistance[/B]
There are always reasons why technical support and resistance are created - especially when there are unexpected events that cause technical support and resistance to be broken. Once these unexpected events result in technical support and resistance to be broken that support and resistance becomes significant in the future. This is essentially combining what some people note as fundamental analysis and technical analysis.
[B]Method 5 - Automated trading portfolios[/B]
There are plenty of automated systems that do work. Many of them rely on cost averaging and only provide very slight returns over time and cannot trade on high leverage. They also need to be managed. When there are significant âtrendsâ reducing or switching off your allocation to range bound automated traders should be limited, and when there are significant range bound markets, then reducing the allocation to break out and volatility strategies should be limited. Again, a single strategy automated is not useful. Combined with a rebate service (preferably one that does not widen the spread - this does happen so check with them before you do this) even if you make a small loss on the markets, you can end up taking money.
[B]Method 6 - Cost averaging trades[/B]
Although traders love to be able to say that they caught the top, or caught the bottom, the overall purpose of trading is to make money rather than to show off how you can predict the future. I am not so much of a fan of cost averaging, but over recent months the low volatility in the market (about a third daily range from when I first started) has meant that cost averaging methods do work. Of course, if you did without knowing the background (ie: shorting EURJPY when the BOJ were doubling the monetary base) you could suffer - but as long as you have an exit strategy, and a reason for entering, plus use very low leverage in total, it can provide slight returns over time. But its important to stress that you do need to have a purpose for cost averaging - in my mind it is no good cost averaging a position for the sake of it.
[B]Method 7 - Long term distribution and accumulation[/B]
Distribution and accumulation is one of the methods used in stock analysis on a long term basis. In forex for some reason people have attributed it to the 5 minute chart or 15 minute which is fundamentally wrong because movements on smaller timeframes do not reflect accumulation and distribution to an accurate degree in my estimation. This is because of the scales of small charts (I donât believe charts to be fractal unlike a few other traders). Long term distribution and accumulation can offer worthwhile position based trades.
Added to this are a few technical set ups and all the methods I donât use. Plus please note the trade management that I have harped on about. Note that this means that there are plenty of opportunities in trading, but I take very few of them on a discretionary basis so I limit my exposure to losses. As I have mentioned in all of my previous posts there is so much deception and bad trading advice out there. If you paid attention to none of it, you would be a break even trader (because you wouldnât take any trades - you might even collect interest on your deposit). If you pay attention to some of the bad methods, bad advice, fake news etc out there, you immediately start to lose money - making avoiding bad trading methods just as important as good trading methods. In fact, considering there are a lot more bad trading methods out there, it is easier to trade badly than to trade well. For all those profitable traders out there - just imagine if you hadnât listened to all the rubbish advice - how much further along would you be?
For those interested I am about to embark on managed accounts as part of my journey from babypips member and beyond.
Thanks for the latest nugget of wisdom, goldenmember. And congrats on your success!
Itâs late at night, and I just finished watching Brazil get beaten by Germany - to think I was going to put a bet on Brazil to win the World Cup (I should have put a bet on England to go out in the first round), and I thought I would ask peopleâs thoughts on porfolio management and trading in general.
Do people here only trade forex or do they invest in shares as well? Do they invest in mutual funds, investment bonds, etc, or do they just focus on trading currency? And if they just trade forex, why do they only trade forex - why donât they look at other assets or investments?
A second question - why donât traders form more physical collectives? I know that you probably know people on the internet who trade, but have you met anyone physically, and does that matter to you? And if not, why not?
Itâs been awhile since I logged into babypips. I took a hiatus from Forex actually as my life got thrown into a blender. Forex had nothing to do with that, I just wasnât mentally in a state that I could give it the attention that it requires and would have made stupid decisions, so instead I sat out. I plan to go back and read your thread to get caught up and see what I missed, but thought I would add my 2 cents to your questions.
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I personally invest in other areas as well. I have shares of stock and mutual funds. I do not have any bonds though as for me, the return is too low. Iâm still fairly young and donât want to tie up my investment capital in slow gains. Stocks/Mutual funds are a great way to see some gains at a reasonable rate, but you tend to get stuck following the general market. Forex is my preferred method (though I am still very new) due to the volatility and the increased flexibility of entering the market at any time. It is also better for me because I have a career that requires my attention during the day, but in the evenings I can utilize Forex.
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I have never met anyone that I met online in regards to Forex, but I have talked with other people that I know personally that are involved (though there are few). Personally, I feel it is an action that requires the internet, so there is no reason to meet in in person when you can communicate online just as easily so I donât put a high level of importance on meeting others that trade. However, I think it would be interesting to meet for brainstorming sessions in an effort to pick out some upcoming trade setups and defend/explain them to one another for everyone to learn and also to reinforce the potential position.
Hold up⌠I recognize you from another forum. L4P?
I have posted on other forums, but I donât know what L4P is?
Luxury4Play. I remember someone posting the same myfxbook link as yours. Or maybe Iâve got the wrong person. In that case, sorry!