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Tag Archives: trading

Do You Have An Unconscious Trading Bias?

Do you have a trading bias? Or are you a trader that is comfortable on both sides of the market?

opinion

What is a trading bias?

A trading bias can be an opinion about the market, or a certain currency pair, but it could also be an unconscious behavioural pattern that is affecting your profitability in the market.

Many traders do not realize they have an unconscious trading bias, but recognizing that you have one, and understanding how it can impact your trading performance, is something that you may need to do in order to make yourself a better trader.

Trader psychology does play an important role in trading, fear and greed are the most common problems that traders have to deal with on a daily basis, but if you have been trading for a while, as I have, there are some interesting characteristics that you may be applying to your trading behaviour, without actually realizing it.

When I first started trading.

I have been trading for almost 25 years. I first started trading equities in the early 90’s. When I started out on my trading career all those years ago, I did not have all the sophisticated charting software that we have today. I remember having to plot my charts on graph paper that I purchased from WH Smiths.

I first started out as a retail investor rather than a trader, plotting my charts by hand with end of the day prices taken from the Financial Times. My strategy was to buy and hold, buying value on dips, and following the long term trend. I had never heard of shorting, and with the limited resources available to me, I only really had the option to buy stock. So my brain was conditioned to only look for buying opportunities.

This early learned behaviour pattern has unconsciously been carried with me all my trading career. Even now when I am trading, I always feel more comfortable when buying rather than selling. These early trading experiences have shaped my trading psychology to this day, and there will be others in the same mindset.

Did you start your trading career buying equities?

If you started out in equities as I did, there is a good chance you will be more comfortable with long positions, rather than short positions, as I am. This bias does not stop me from taking short trades, but it just feels a little more normal when I am long.

start trading careerIf you keep a trading diary as most traders do, it would be a good idea to look back at the trades you have taken, and compare your long trades against your short trades. Are you taking more longs than shorts, or vice versa? Also look at the profitability of your longs verses your shorts.

An unconscious trading bias can also affect the length of time you stay in trades, so check that too. Are you mostly staying in long trades or short trades?

Knowledge is the biggest asset to trading profitability in my opinion, but it will help your trading if you can understand your trading behaviour, and recognize any trading bias that you may have, that could be affecting your profitability in the market.

If you enjoyed this article, and think it would benefit other traders, please like it on Facebook, tweet it on Twitter, or bookmark it using one of the social bookmarking buttons below.

Thanks for stopping by, and have a great day. 🙂

3 Critical Tips For Choosing A Forex Broker

The importance of choosing the right forex broker is often underestimated. New traders with dreams of getting rich quick often look for features that are not important, and can even do more harm than good. In this article, we describe the three most important things to look for when choosing a forex broker.

1. Choose a broker who is subject to strong forex regulation.

The importance of this cannot be understated. Unregulated forex brokers are able to take advantage of you in ways you do not even realize. A prime example is slippage. Slippage is the difference between the price your trade is executed at, verses the price that was quoted when you placed the order. Slippage is a normal part of trading, because prices fluctuate all the time, and can easily move in the short time between when you place an order, and when it executes. However, unregulated brokers can pass the unfavorable slippage on to you, but keep the favorable slippage for themselves. This increases your transactions costs, and the effect can be significant over time, especially if you are a scalper.

The CFTC & NFA have arguably the strictest forex regulation in the world, and they audit their brokers regularly to make sure that slippage practices are neutral. This is just one of many ways that forex regulation can protect you as a trader.

2. Choose a broker who obeys the law.

This may seem obvious. However, it may surprise you to know that as of May 2015 there are only two forex brokers left in the United States who have never been fined by the regulators. The rest have been fined or banned from doing further business. Even in the face of strong regulation and regular audits, forex brokers still try to get away with cheating their clients. Do you want this kind of broker handling your money? Of course not. If you screen for United States forex brokers from this broker review page, you can easily see which brokers have been fined, and which have a clean regulatory record.

3. Choose a broker with low transaction costs.

Transaction costs are a lot lower than they used to be, and you may think this does not matter much to your trading anymore. If so, you are mistaken, and the following example illustrates why:
Say your starting account balance is $20,000. You have a simple trading system with a 30 pip stop loss and a 30 pip take profit level. You leverage 10:1 and you win 55% of your trades. Broker A offers a spread + commission of 2.5 pips, and Broker B offers a spread + commissions on only 0.7 pips. You make 450 roundtrip trades per year, which is just under two trades per day. The following chart shows the results after one year:

tips for chosing a Forex broker

The chart shows that with Broker A:
• 83% of your gross profits get lost to transaction costs
• Your net profit for the year would be $4,500 or 22%
With Broker B:
• Only 23% of your gross profits get lost to transaction costs
• Your net profit for the year would be $20,700, or 104%

In this example, you are clearly better off with Broker B. The difference in transaction costs will have the greatest impact to your trading if you trade frequently, or have a narrow trading edge.

This article was kindly provided by Forex Scam Alerts, who provide advice about the risks of forex trading and how to avoid scams.

If you enjoyed this article, and think it would benefit other traders, please like it on Facebook, tweet it on Twitter, or bookmark it using one of the social bookmarking buttons below.

Thanks for stopping by, and have a great day. 🙂

Volume Spread Analysis (VSA)

This article was kindly provided by Leonardo Barata of analyticalvsa.com who is an active VSA trader. VSA is a trading method that is favored by many traders. I do not trade VSA myself but you may find it interesting. If you like this article please share it. This article is for entertainment value only, and is not a recommendation to trade VSA.

What is volume spread analysis?

Volume Spread Analysis is a methodology originated in early 1900s, by Richard D. Wyckoff (1873-1934), a successful Wall Street trader and later known as the man who made a fortune in the 1929 market crash. Other very successful traders such as Richard Ney would use this methodology as well, only under a different name. This methodology, which is also called the Wyckoff method, was put in more modern terms by Tom Williams, a former syndicate trader based in London, in the 1960s. For the deep insights on the markets that it provides, and the fact that it can be applied to virtually any liquid market, VSA made a name for itself in trading communities.

Understanding VSA.

To understand what VSA is about, we must first understand who are the people who are making money in the markets, and how are they doing it. Like in any other business, there are specialists: some traders specialize in energy futures, others may specialize in the Japanese Yen pairs, others day-trading forex or stocks, and so on. And who are them? These are institutional traders, pit traders, syndicate traders and market-makers, which make a living speculating on the markets. If only we could know what those specialists are doing, then we could trade almost anything without having to do all the fundamental analysis and without looking at all the factors that influence the prices. Well, it turns out we can, and this was exactly Wyckoff’s breakthrough!

The role of volume.

The quantity that represents the activity in the market and is widely available (though not widely used impressively) is the volume. And one thing about the traders who consistently make money in the markets over the years, is that they’ve been able to accumulate a lot of it, and will make large trades to earn a significant amount of money for them. So the volume is the starting point of our analysis, and will show if there is a significant activity (or lack of) in the market, which will be very important to determine what the professionals (smart money) are doing.

Spread’s importance.

But Volume Spread Analysis as the name implies, not only uses volume but also the spread (bar’s high – low). The bar’s spread gives clues as to what type of activity is happening: for example, a low-spread up bar with high volume, indicates there was a lot of selling by the professionals and buying by the public: they prevented the price from going upper by dumping their positions in the market, which the public was happy to absorb. Another example: if there was an widespread down bar with high volume, and the next bars are up, it means there was actually buying on that down bar. Why would the prices go up if that was true selling? The smart money uses the public euphoria to dump or to open their positions, as not to turn the prices against themselves.

Charts examples:

accumulation

The end of the 2008 stocks bear market: Right before the bear market ended, there was accumulation (professional buying) evident in Dow Jones Industrial Average and other indexes. Signals of distribution were also evident before the bear market started in 2008.

The gold top: right before the bear market in gold, and after all the buying euphoria by the public, gold finally collapsed after signs of heavy distribution.

distribution

Learn more and get VSA indicators on our volume spread analysis website.

About the author: Leonardo Barata is a forex and stocks VSA trader and developer.

A Horse Called Forex. How Many times Have You Fallen Off?

Do you have a horse called Forex?

How many times have you fallen off and got back on again? In the early days i fell off quite a few times, and every time i did i said that’s it, I’ve had enough, i am never trading again. But after a few hours, or sometimes a few days, that horse would be looking at me and saying, come on, get back on, and let’s try again. Forex trading was in my blood.

I am sure many of you can relate to this situation. You really want to trade well, but you are struggling to find good entries, or your stops always seem to be getting hit, or you are doing silly things, like jumping in to try and catch a big move. You have a few good days and then wham, you’re off the horse again.

Forex Grand NationalTrading can be very much like the Grand National for many traders, staying on the horse on the flat is not too much of a problem, but come to beecher’s brook, or the chair, and you are falling off again.

I am going to let you into a little secret. Many traders make a common mistake when they are trading, and that is they focus on making money, rather than being a successful trader.

Making money is a by product of being a great trader. You have to be a great trader first, and the money will come later. If you focus on making money you are trading emotionally, and if you are doing that you will make more mistakes, and you will fall off the horse more often.

Another common problem for a lot of traders is they do not really know what they are doing wrong, this is primarily because of a lack of knowledge. But if you are confident that you do know what you are doing wrong, but you are still struggling, then type out a list of the things you are doing wrong and keep it on your desk, or put it up on the wall in your trading room, to keep you focused.

Knowledge is everything in Forex trading.

To be a successful trader you have to have many qualities. The most important quality you need in my opinion is knowledge. You cannot be a successful trader without that. If you do not know how the market works, and what makes prices move, you will always struggle. You can have the other qualities that you need, like patience, and discipline, but without knowledge you will never be a consistently profitable trader.

Forex KnowledgeAll the information that you need to be a successful Forex trader is contained within the chart, but to be a successful trader you need to know how to read that chart.

Many traders think they can read a chart, but the truth is they can’t. They think they know what’s going on, but then the market does something weird, and unexpected, and what looked like a great set up, is now turning into a losing trade.

If you can relate to this, then you do not fully understand what the chart is telling you to do.

In my experience, the market will do something weird or unexpected about once a month on average. The rest of the time it does exactly what i expect it to do. So if you are experiencing unexpected weird market moves more regularly than that, then you lack the market knowledge needed to be successful. And let me tell you this right now, its not your fault you lack the knowledge you need, and its nothing to be ashamed of. Your knowledge is not up to scratch because the majority of information available to you to learn from, is poor at best.

Professional Forex training.

To be a great brain surgeon you need professional training, to be a great doctor you need professional training, etc etc. So why do some Forex traders think they can teach themselves to be a great trader? You would not try to do it in any other profession, so why try to do it in Forex? If you try to teach yourself how to be a brain surgeon you could kill someone. No one is going to die if you try to teach yourself how to trade, but your bank balance is going to get killed that’s for sure.

Professional Forex TrainingTo be successful in any profession you need to have professional training. Why are 95% of Forex traders losing money? Because 95% of Forex traders are teaching themselves to trade, or paying a few 100 bucks for a pretty pathetic Forex training course that will not teach them anything of value.

Why are so many graduates looking for internships at investment banks, or hedge funds? Because they want to be trained by professional traders. If trading was easy they would pay a few 100 bucks for a Forex training course, and be on their way to their first million, but we all know that there is a little bit more to it than that.

So what conclusions can we draw from the experience of continually falling off the horse. Well the first conclusion is that you are doing something wrong. So if you do not find out what it is, and do something about it, you are going to continue to fall off. Doing the same thing over and over is going to produce the same result.

What do i need to become a winner?

Forex Winners

In my experience the main problem you are facing is a lack of understanding. So you have to acquire the knowledge you need to be successful.

You have to find a professional trader that is prepared to educate you to give you the knowledge you need to be successful. Its a lot easier to be patient and disciplined if you have sound trading knowledge backing you up.

So if you have fallen off that horse called Forex more times than you care to remember, and you still want to get back on, then Forex trading is in your blood, and only 2 things can happen. You can either go broke, or you can reach out for help.

Realistically there is only one route you can take if you want to stay on the horse long enough to win the race. You need to be trained and mentored by a professional Forex trader.

If you have managed to make it to the end of this article, you now have 3 options.

Option 1. You can get back on the horse, do the same stuff, and fall off again, until you run out of money.
Option 2. You can contact me and i will teach you how to stay on the horse, and become a winner.
Option 3. You can shoot the horse and quit. 🙂

Which one are you going to choose? Option 2 looks like the favorite, and a pretty safe bet to me.