Forex Trading Basic Part 1

I'm sorry I have not been blogging for a while. The market has been very volatile in March with FOMC (Federal Open Market Committee) meetings, Europe's geo-political changes and of course Trump.

Earlier this month, I also attended a formal forex trading which opened my eyes and corrected many of my earlier trading bad habits. I would highly encourage anyone keen on forex trading to attend. The fee may seemed like a challenge but you'll make it back in one or more trades. My teacher is Jack Zhang - a very experienced trader and you can find his website here (http://harmonicasia.com)

In this and subsequent posts, I will try to impart what I know and my experiences with forex trading; starting with the very basic so you can get yourself started towards gaining financial independence.

So, without further ado, let's start!


What is Forex

Forex or Foreign Exchange is the trading of currency rate fluctuations between currency pairs. Currency pairs are grouped in to majors, minors, exotic, metals and commodities; majority are traded against USD as the base currency.

Examples of currency pairs are

• Major - AUDUSD, EURUSD
• Minor - EURAUD, USDSGD
• Exotic - USDZAR, USDTHB
• Metals - XAGUSD (Silver), XAUUSD (gold)
• Commodities - Sugar, Oil against USD

💡 Like stocks, you need to be familiar and keep yourself current on what you are trading. As such, it is not advisable to be trading in more than 3 forex pairs for a start.


How do I start?

Forex is traded through CFD (contract for differences). CFD is a derivative in which you do not own the underlying asset. As such, it gives you the flexibility to buy or sell a product without needing the capital to own it first. On the flip side, it also makes it more risky.

Step 1 - Create a demo account and get used to some paper trading before you jump in with real money. I would recommend using IC Market as they are reputable and have the lowest spread amongst the brokers I have tried.

Step 2 - Create a account with TradingView. This is where you can get really good trading ideas and use their chart tool to plan your trade.

Right, you're set.


Forex Trading Basics

Q: How much do I need to start?

It can be as low as $2,000. There are many students in my class who are using forex to pay for their study loan. A larger deposit will enable to trade in larger quantity. The rule is simple - deposit what you are willing to lose.

Q: What is balance, equity and margin?

As you are trading CFD, you are using margin to buy those contracts. Contracts are typically traded in lots; 1 lot usually equates to 100,000 contracts and you can trade 0.01 lot or 10 lots.

Every currency pair has different value per contract. One you lock in a trade, that amount is calculated as your margin requirement and will not change while you are holding the contract.

Equity is how much your account is worth as the exchange rate goes up or down. In simpler term, it is your balance at the point in time if you close all your open trades.

Dividing your equity over your margin gives you the margin level in percentages. This is probably to most important indicator you need to take note of and keep as high as possible. Once your margin gets below 100%, you will no longer be able to execute new orders; and when it goes below 50%, your trades will be closed automatically, realising whatever loses you have.

💡A simple rule is that you should trade a maximum of 2 lots per $10,000 deposit.

Q: Do I have to own the asset before I can sell them and can I be buying and selling the same currency pair simultaneously?

No. In forex, because you are not buying the underlying asset but the direction and magnitude of rate change, you can choose to buy (long) or sell (short) the asset. There are different school of thoughts to hedging. My view is that you should avoid hedging and unless necessary; and if you plan your trade, you would not need to hedge.


Try Out

Before we go into the really understand how to trade. Let's try some basic trading.

1. Install MT4 trader on your laptop and launch it. For a start, let's focus on one chart and close all others. If you do not have USDJPY as your chart, simply find the pair in the Market Watch window and drag the pair into the active window.

2. Right-click on your chart and enable 'One-click Trading'. You should have something like this.

3. Finally, locate the 3rd icon from your right on your menu list and add the following indicators

• Bollinger Bands
• Stochastic Oscillator

You should see something like this..




The last step for the try out. Do one of the following;

1. Green candle touching the top of your band, if the next candle starts red and on your Stoch Oscillator - Red line above Green. Click on the Sell button.
2. Red candle touching the bottom of your band, if the next candle starts green and on your Stoch Oscillator - Green line above Red. Click on the Buy button.

Congratulations! You have placed your first trade.

Till my next post, try it out and see if you are making or losing money by the end of the week. It is certainly not so simple but you will appreciate the next few lessons more once you have some experience figuring out trading on your own.

Cheers!

General Investment & Forex Tips

Forex trading is an art. If I am an educator, I would make sure that there is a module on Forex trading in every university course. It teaches one important lessons in life - money management, controlling your emotions, patience, fear, analytical skills, current affairs. I have never been so aware of the world when I was just doing a job.

Below is my view how one should allocate his resource in building up his wealth for retirement. Forex being both a passive and active option for wealth accumulation.



Learnings and observations

• There are four key markets and each have varied activities. In order of highest activities - US 41% (from 9pm to 3am), UK 16% (from 4pm to 12am), Tokyo (from 9am to 4pm), Australia (from 6am to 2pm). 

• The first 30 minutes of each market open represents the trade direction and that direction usually reverse 30-45 mins before their market closes. As forex is a derivative, they can start with either buy (long) or sell (short) positions but will always clear their positions before the end of the day. Any trade carried forward incurs a swap fee and additional risks.

• There are two quiet periods - 10am-3pm and 5pm-8pm where volatility and price movement are low.

• For intraday trades (scalping), the ideal time to trade is from 3pm to 12am. Always clear your trades or set stop loss before logging off.

• For swing traders (those who has a day job and trades on daily charts), the ideal time to trade is between 9pm and 12pm.

Events

• Before high impact events listed on the Economic Calendar, the trade usually goes quiet as well. Avoid the first 5-10 minutes after the results is announced as there will be high volatility. The audience interpreted the news differently and there could be huge swing up and down; that can be very misleading. It can also create slag - meaning that the prices are jumping so fast that you are not seeing the actual price when you trade.

• Stay up if you need to; especially during wage data, labour data and Fed announcements.

February Performance

February has been a volatile month that thankfully ended with a good note. A lot of changes to my portfolio that can be summaried into

1. Reduction of equities investment and redirecting them into Forex
2. Experimentation of Forex brokers and efficacy of Expert Advisors (EA)
3. Change in growth plans and tuning down of trading activities for a more balanced lifestyle

For the month of February, I ended the month at 314% of February's target and 246% of YTD target; with winnings from Forex contributing a whopping 88%. I made just a few hundred dollars shy from my last drawn 1H OTE in February alone.

With initial success from Forex, I have been spending the last two weeks learning to code my own EA and is in the midst of testing a rather promising EA. It'll be another month before I can declare it a success but I am fairly confident that it'll do well. If that happens, I will retire officially and terminate my rather feeble attempt at job hunting 😄. Stay tuned.

myFXbook - A Must Have for Traders

I've sold all my equities and CEF earlier last week and made off some a decent profit. Since then, I have been putting all my efforts on CFD trading on SimpleFX. As of this post, I stand at 223% of my monthly target and 197% of my YTD target; with another two weeks to go. The result is both encouraging and frightening.

One of the many great things you can do with CFD trading platform developed using MetaTrader 4 is that you can easy export your historical trading record and analyse your trading patterns for repeatable success/ failures to avoid.

That what many traders do, and take it a step further to develop automated traders or Expert Advisors (EA) based on their successful trading patterns/ rules.

Note💡I do not advocate trading using automated system. Personally, I think it is extremely important to trade manually so you can react quickly to the slightest market movement.


In this post, I will introduce a very powerful online tool - myfxbook. It is a must have for Forex news and Economic calendar updates. Beyond that, Myfxbook also help you tracks your performance.

Myfxbook allows you to connect your trading account to it using a investor password (read-only password) and automatically imports (as well as update) your trading history. It then provides you with very detailed information that you can easily filter in any ways you can think of.

A quick of a summary of your performance is presented below and in a bar chart.



And then finally, the last section contains all your trade history (which I will not show as there is too many lines to blank out before I can publish it). In this section, you can view detailed performance summary in a numberer of ways.




As a data person, I love Myfxbook. I wished our company's performance dashboard look like this. It was primitive compared to what myfxbook does for free. 😜

If you're checking out Myfxbook, please also read up on their Payback Rebate scheme which uses them as a reference to earn rebate from trading platforms; and they in turn, refund the majority of it back to you.

Knowing Where To Knock

(repost from my LinkedIn)

My father did not believe in higher education. A self-made man who grew up in the streets; he started his apprenticeship as a mechanic at the age of fourteen. He firmly believed that all his children should be independent after completing high school. So at the age of sixteen, I started the first of my nine years with the Republic of Singapore Navy in exchange for allowances and a diploma in engineering.

During a regular sortie (sailing exercise), one of the ship's engine failed to engage; stranding the ship out at open waters. I was off duty and asleep when I was required in the control room where everyone else had already gathered. Stumbling out of bed, I made my way towards the engine room. 

At the hatch, just before the engine room that separates the CPO mess and the control room, I peered through the porthole and studied the indicator lights on the engine panel. I knew where the trouble was. I picked up the sound-powered telephone nearby and hailed the control room "Go to engine 4 and lift the 3rd floorboard to its left. You'll find the brake sensor mounted on the frame. If it is engaged, give it a gentle tap." Sure enough, the engine engaged shortly and I went back to bed.

There, a real life story of knowing where to knock. I wasn't paid $10,000 for it (far from it actually) and stories like these are not uncommon as there are countless others who are better. Yet, it was a lot of hard work to achieve the level of competence and experience. Immersing yourself into the problem and getting your hands dirty is often the fastest and best way to learn.

The Navy taught me many things but most importantly, it taught me the need to go above and beyond; Consistency beyond discipline, excellence beyond competence, loyalty beyond respect, resilience beyond endurance. 

I was posted to the Naval Logistic Branch and did the job for a non-uniform officer who was perpetually absent from work. I was given the opportunity to participate in the EMMIS migration to NLMIS and the privilege to be trained in SAP R3 solutions. It was through this experience that I realized what I have a flair for and from there, I took MCSE and CCNA, and planned for my eventual exit from military service.

Forex Strategy

I am happy to say that after much trial and success, I've settled down on my CFD trading strategy. As of this week, I've already met and exceeded my OTE for the February with 12 more trading days to go. I did a total of 42 trades yesterday; of which 40 of them made money.

During the early days of my trial with CFD, I applied my strategy for trading equities and it was a terrible idea. I ran up to thousands in paper losses, could not trade for a good number of days and was nearly forced to close my trades. 

I learned that for Forex, you lose more money if the market moves against you than you would make, had you made the same bet and the market moves with you. Just look at my trades below; it took me 780 pips to win $3,000 but took only 340 pips to lose $4,800.



Trading Forex is stressful. I am literally glued to the screen more than 16 hours a day (a friend corrected me that Forex trading is not stressful, it is not having a regular income and depending fully on Forex that is).

So for the benefit of others, I am sharing what I do in a simple 3-steps process below. Do note that there is no guarantee and my strategy may not suit you. You should always make your own judgement and understand the tremendous amount of risk in trading Forex.

Step 1: Know Your Trading Band

The first step is to research what is the band in which Forex will move. This is to ensure that I do not trade, and God help me that I will never hold (again), any positions outside of the band.

Some traders will use the monthly, weekly, daily and hourly support and resistance levels as a guide. I tend to take a less stringent approach and go with the very general longforecast.com's monthly forecast (which is updated daily).

Once I have that, I set my general direction for trade and trading limits within the band.

Step 2: The Bollinger Bands

Green arrows represent buy positions and orange represent sell

In the screen shot above, you can see that the trades always move within the Bollinger Bands and it "bounces" off the top and bottom of the wall. 

I have marked the positions that I entered a buy or sell position using green and orange arrows respectively. It is important to note that I did not open the positions when the trade touches the wall immediately. Instead, I relied on two additional checks below

1. That the direction of trade is changing
• Indicated by the lines showing that it is about to turn. One must be extremely lucky to catch the tip of each change and I tend to play it safe by entering only after it turned.
• Referring to the 5 mins technical analysis on Investing.com
2. That the Relative Strength Indicator (RSI) is less than 40 for buy positions and more than 60 for sell positions.

Step 3: Trading Limits

The next and final step is to know when to cut your losses and when to take profit. For all my trades, I target to earn no more than 15 pips per trade.

Using 15 pips as the limit, I then go back to the Bollinger Bands and use the bands as reference to further limit my exposure. One can play it safe and use the average (purple line) or be bold and use the upper or lower wall as limits. Always remember set targets for both especially if you are going to be away from keyboard (AFK).

SimpleFX allows you to enter the position for profit taking and stop loss

I'm going to be writing less. Need to make more money 😁 I've set a new (and lofty) target for myself.

January Performance

I have introduced several investment options in my previous posts. In this post, I will piece them together with a view of how my investments are spread and a summary of their performance for the month of January 2017.

Invested Capital

About 70-75% of my cash assets are invested. When I was gainfully employed, my target was to invest 80% of my savings but since I am no longer drawing a regular income, I need to maintain a higher liquidity for monthly expenses.

Asset Allocation

Composition of Earnings from Investment

For the month of January, the larger portion of what I make from investment came from my equities. However, I suspect that the composition will change as my focus shifts. I plan to dial down my investment on US equity and gradually shift more of it to Close Ended Funds (CEF). While Close Ended Fund may be the least performing investment, it is certainly the most consistent.

Contribution Mix from Investment

Performance Summary

I started tracking my financials with a spreadsheet after receiving my first pay cheque in the private sector. I will explain why over a cup of coffee but coming back to the topic, it is important to track your finances diligently as you cannot improve what you cannot measure. It is also important that you set a realistic target for yourself to achieve.

Using my On-Target-Earning (OTE) as the benchmark, income for January ended at 195% of my monthly target with a return rate of 16.3% on closed trades! In simpler terms, I made twice of what I was earning when I was employed. 

Of course, it is just the first month so it is still inconclusive that I would be better off. I have put in a lot of work into research but a couple of the larger earnings are unexpected. Basically, I got lucky a couple of time and thus, I am not confident to say I can repeat this in February. However, I am pleased with the result so far as it has been very encouraging.

HUAT AH!