Crazy Candlestick Pattern

I just thought I'd point out this rather rare candlestick pattern from last week's EUR/USD daily charts. This unusual creature emerged on May 29, undoubtedly in response to some piece of news I wasn't paying attention to at the time:What you're seeing here is a 100 pip range, and a closing price just 1 pip above the open. In candlestick parlance it looks like a Doji Star to me, or possibly a very narrow Spinning Top. This is just about the clearest illustration of market ambivalence and uncertainty you'll ever see: the price aggressively testing both short and long directions and then settling back within 1 pip of where it all started. The upper shadow is also substantially longer than the lower one, and you can see how the next day the price headed lower in response to such a dramatic failure to make any progress upwards.This is also the perfect illustration of an intraday whipsaw or range-based trading opportunity. If you had your stop-loss set at a safe distance and your limit order at a modest, realistic exit point, you could've made money on either a short or long trade. But I wouldn't plan on one of these showing up on a regular basis.

Beware of Sloppiness

Yesterday I made a trade I shouldn't have, and I made it because I was rushing through my trading routine and not paying enough attention to important little details. In short, I was sloppy. And the result was I lost 21 pips I should never have even risked in the first place. That's the great thing about forex - you can usually put an exact cost on your mistakes. In retrospect it's pretty clear to me why I was being so sloppy. I really wanted to make a trade, partly to make up for all my lost trades last week. I started updating all my price data with too little time to spare before my 5:00 pm trading window, so I was in a rush as well. Rushed data analysis + irrational need to trade = trouble. So when my system generated what looked like a valid signal, I placed a trade instantly without double-checking the key variables that went into the signal. It's always a good idea to double-check your data - especially if you're in a hurry.The error I overlooked in my rush to trade was that I'd entered the date wrong. This isn't the first time I've gotten into trouble with dates, but in the past I took the time to double-check them. Not this time around. It's just about the simplest mistake I could make...and surprise, surprise, it's the simple mistakes that always seem to cost me the most. The good thing is they're also the easiest mistakes to catch. So I guess the lesson here is, look before you leap.

Back on Track with FXCM

Yesterday I made an overdue switch of trading platforms from FX Engines to FXCM's TradeStation II. If you've been following the last couple posts you already know the reasons: FX Engines has been down for several days (still is, in fact). As a result I missed three winning trades in a row, and would've missed another winner last night if I hadn't made the switch to TradeStation. Fortunately this turned out to be very easy since FXCM was already my forex broker and handled all of FX Engines' trade execution. So it was just a matter of faxing some power-of-attorney paperwork and downloading the latest version of TradeStation, which I'd used before so there weren't any big surprises there. Last night I made my first TradeStation trade by successfully shorting the EUR/USD, a promising start on the new platform. Overall I've found TradeStation II to be a fine piece of software. The only small differences I've noticed with other trading platforms is that it doesn't come with default charts pre-loaded, so you need to set them up yourself. Which is no big deal. You also can't trade directly off the charts by pointing and clicking at your desired entry point. Again, not a big deal for me.One trading option offered by FXCM that I'm very interested in is "No Dealing Desk" trades, which apparently have narrower spreads and currency rates that come directly from the large interbank players rather than from FXCM's in-house dealing desk. My only concern is that no dealing desk spreads could vary wildly at moments of high volatility in the market, and since that's when most of my trades tend to close I don't want to wake up to any nasty surprises. So there's definitely a trade-off between the greater certainty of the higher dealing desk spreads, and the lower yet more uncertain no-dealing desk spreads. I'll have to do some more research before I decide it's worth that added spread uncertainty.To be fair, the reason FX Engines has been down so long isn't really their fault. The problem is apparently on FXCM's end, since they made a change to their trade fulfillment system that broke the API (Application Programming Interface) that allowed FX Engines to trade through FXCM. Which obviously really sucks for FX Engines and their clients, like me. So I hope FXCM gets their API working again soon.
Labels: Brokers and Market Makers, FX Engines, FXCM (Forex Capital Markets), Spreads

The good news: a seven trade winning streak. The bad news: the last two don't count.

As if to prove that nothing can ever go completely right in forex, I woke up today to find that my trading system made its seventh winning trade in a row - definitely a new record for real trade predictions, not just theoretical ones in my historical backtests. The problem was, I couldn't make this trade, just as I couldn't make the sixth winning trade last Friday (as I mentioned in my previous rant). The reason being my trading platform FX Engines was still down, and still is last I checked. While I've had a lot of good things to say about FX Engines in the past, this is approaching an unacceptable level of downtime during live trading hours. I can certainly sympathize when a server goes down, which they inevitably do - in fact, I've worked at a dotcom start-up where screwy servers gave me a couple extra weeks paid vacation. But can you imagine what would happen if a big player like Charles Schwab or E-Trade (or Oanda, or GFT, or you name it) went down for two trading days, three if you count the Asian trading session on Sunday? Even if you're a small player, you're going to need the uptime and reliability of a big player if you want to compete.Anyway, I just had to vent a little because it's kind of a bummer to see a nice run of trades killed off because of technical difficulties, which of course never seem to crop up during a losing streak. That's the last I'll say about it, I promise. Well, unless it happens again. Happy glitch-free trading!

Missed a winning trade. But I'm not upset. Really. OK, maybe a little.

If you've been following the blog much lately you'll know that I currently get a lot fewer trading signals because of some strict filters I've set up. So when a trading signal does come along, it's a big deal. And yesterday I got one to go short the EUR/USD for 22 pips, and in the ranging price action that followed it turns out it would have been a winning trade. Which would make it the 6th winning trade in a row, possibly setting a new record if I kept track of these things. But I couldn't make it, for a couple of reasons.First, I was out hiking with some friends and then out having a beer at a favorite venue in San Francisco. So I missed the ideal entry point for my trade, which was at 5:00 pm, just as I was wandering around the forests south of here. When I got back, 10 pips profit had already been shaved off the trade, so it would've been only a 12 pip trade. All of which is entirely my fault and if the trade had been enough of a priority I clearly would've been sitting right here glued to my laptop. And I wasn't, and while I'm a little annoyed with myself I still had a fun afternoon. And fun has a cost, which in this case can be measured in pips. The second reason is that FX Engines, my trading platform, had a server go down and wasn't working at all. This is the first time they've gone down during trading hours and it came as a bit of a nasty surprise. Who knows, maybe if I'd showed up on time the site still would've been up and I could've made the trade, but there's not much point in wondering about it now. Anyway, the upshot of all this was: no 22 pips, and a break in a nice winning streak. The larger lesson, and one I think I'll revisit in a more comprehensive post on the subject, is that there are a lot of unforeseen logistical risks to your trading lurking out there and you'd better be ready to fix the ones you can (like being on time for a trade, if that's important to you) and accept the ones you can't (like your broker's server going down). And if the same problems keep cropping up, it might be time to make some changes to your trading setup. But more about all that in a future post...

Current Trading Strategy: Slow and Steady

There's a lot less daily drama and a lot more sitting on the sidelines in my forex trading these days, and so far it's a strategy that seems to be working. Because of the filters and meta-signals I've added to my trading system, it generates a lot fewer signals than it used to, since it's switched off during periods when it's likely to underperform. So in an average week I'll now make 2 trades or so, a lot fewer than the daily trades I used to make (and that ended up leading to some really nasty drawdowns late last year). I'm looking for smaller profits with each trade too, with my limit orders set at levels targeted for both trending and ranging price behavior. This slow and steady strategy looks for a few high-probability trades and in the process filters out a lot of potential winners but also lots of losers, and seeks out modest profits across many different market conditions, with a focus on playing the likely daily range rather than hoping exclusively for profitable trends (which can be few and far between). And with the signal flipper I've added, there's a built-in ability to recognize when the core indicators aren't working and basically start fading my own signals. Overall it's a slower, more patient, more boring and thus far, more successful approach to trading. So far this month I've placed three trades using this system and they were all winners, bringing in 31 pips in total profit. Again, not huge profits, but I'll take them over a drawdown anyday. The system also got the two trades before those right as well, making this a 5 trade winning streak. I'm under no illusion it'll last much longer, but I'm sure enjoying it while it does.
Labels: Signals, Trade Filtering, Trading Systems

Global Forex Trading Launches DealBook Web

The first forex trading platform I ever used was Global Forex Trading's DealBook FX software, which I liked for its many charting options and indicators and fast trading performance. But I always felt a little limited by the fact that it wasn't a web-based application, which meant I always had to access it from the same computer unless I went through the install process on every PC I planned to trade with. Despite all those nifty trading tools, I eventually ended up switching to an entirely web-based trading platform, and while I missed some of GFT's features, I felt the ability to do all my trading through a website was worth the switch.So I was very pleased to see that GFT has finally gotten around to releasing a web-based trading platform, called DealBook Web. Though it did take them long enough, and in their introduction they explain why they waited to offer an online trading application: "You might be surprised that we waited so long to develop a web-based trading platform. But, the forex market moves fast, and we knew that web-based trading platforms couldn't keep up - until now." And it is true I've heard some horror stories about trading lags on web-based platforms at key moments of high volatility - won't name any names, but you've probably heard of them. It sounds like GFT had these breakdowns in mind when they put together DealBook Web, which I hope means it'll perform more robustly when the market's running wild.Here are some of the trading tools and features of DealBook Web:
All the trading features of DealBook 360 (GFT's current desktop platform) in a web environment
Access from your computer or any computer
Requires only an internet connection and browser
Multiple, full-screen charting capabilities
Track and trade 60+ currenciesAnd they list lots more on the DealBook Web site. So if you're scouting around for a new web-based broker and trading platform it's probably worth a look - though as with any trading tool I'd take it for a thorough road-test in demo mode before committing any real funds. If you try it out and have any opinions on its performance and functionality you'd like to share, please feel free to post them in the comments below.

Hoping for Whipsaws

Strange as it sounds, my current trading system has me looking forward to days with extreme price swings, or whipsaws, which I used to anticipate with dread. The key to this change in perspective was shifting my strategy from primarily trend-based trading to a system that looks for profits in ranging behavior as well. The result is that a whipsaw no longer looks like one of the nastiest patterns on the chart, but instead is a potential opportunity to grab some easy pips as the market swings within a semi-predictable range.One essential part of my whipsaw-friendly strategy is a take-profit target of just 33% of the previous day's trading range in whatever direction I place the trade. Using a fairly modest limit order like this dramatically increases the chances that a wildly ranging day will also be a profitable one. By combining this take-profit strategy with a significantly wider stop-loss, my trades also allow for swings in the wrong direction that reverse and come back around to hit the take-profit a lot more often than they're taken out by the stop-loss.Whether this strategy will work over the long-term is still an unanswered question (just like it is for any trading system) but results in both backtesting and live trading so far look good. I'll provide a periodic update on how the system's working (or not working) after it's logged some more live trades. Now bring on the whipsaws!