What's your Trading Philosophy ? Here's part of mine

Forex or currency trading is not buying and selling stocks and shares. It’s a different ballgame for me – a bit like comparing cars – ie a Ferrari and a Ford Bronco. They both have four wheels and an engine and seats and are designed to take you from A to B. However as any car enthusiast will tell you – they are so different a bit like “chalk and cheese”.

Talking of “chalk and cheese” or yin and yang - we all will have different views and ideas about how we can tackle this market - but we all have a common goal – we all want to make money and ideally a lot of it consistently without any major massive risks. (yes I think even me and Lisa would agree on that one ;-) )

I think though it is so important that we make our mind up on how we are going to achieve it simply because there is so much incorrect and wrong information out in the market place – and it can lead you on the wrong path.

You could say both good and bad tips have been passed down over the years – from Jessie Livermore and great traders of the past to Barbara Rockefellow – a forex trading veteran of only 25 years;-)

As far as I am concerned, I am still a novice, simply because I have not been live trading currency pairs over 10 years, However the fact that I have spend coming up to 6 years trading the EU day in day out as a retail trader on a full time basis, I have been able to piece together my own facts and thoughts, and develop my own philosophy.

Lets start by saying – not many forex traders are purely full time. I don’t know the actual stats – but ideally to go full time you need a few years under your belt. Over the last decade we have seen a big internet campaign on Forex trading as being the ideal part time business to make you very rich.

This as led to having millions of forex traders around the world and 70-80% of them lose money consistently and normally give up. If we say 10% of forex traders are full time retail professional ( note retail not commercial) then maybe only 20-40% of those lose money – the majority would be making money simply to remain profitable and to carry on.

My own philosophy is so different to so many other traders and tutors – even ones that are highly successful – showing that there are many many different ways to profit. Let’s go though say 20 of them that I like –

The Trend is your Friend – yes the trend is your timeframe. I follow trends to trade – normally my trends last less than 15 minutes and are small – but still give me RR’s of 2-5 in that time.
Risk to rewards are not the only important part of trading – agree ideally you need over 2+ but more importantly you need to have a system that gives you more wins than loses – ie 70% + success rate.
Those guys who say you only need to get 3 or 4 trades out of 10 correct to make money simply because the wins have RR’s over 6 - they are deluded – and inefficient ;-))
FACT – you make more money by doing more winning trades.
Overtrading is only bad if you are no good.
Let your winning trades run and cut your losses quick – true
The market is either bull or bear – don’t go against the flow – rubbish – ideally you can both buy and sell everyday – If I do say 10 trades on a strong bear down day – I would expect say 7-9 of them to be sells – but still 1 or 2 buys if needed.
Naked charts are the best – might be if you have over 10 yrs of experience.
KISS – keep it simple – what in the massive complex dynamic ultra sophisticated high tech fast trading market – wake up and smell the coffee – you need more than KISS ;-)
Big stops and big target are best – roflmao – talk about inefficient - yes OK ten or twenty years and I will be a millionaire ;-))
Small stops and small targets are a waste of time – LOL ( ok – I am not on £5k per pip – if I was I would be very happy with a 5 pip target every day ;-)
The market moves according to thousands or millions of trades around the world buying and selling – yes it’s a good story – but this market is so heavily manipulated its untrue ;-)
Fundamentals are far more important then technicals. Well I have got an Hons degree in Economics and for investing and long term trading – I would probably use it. For intraday short term trading its about as useful as tossing a coin- or watching the direction of your fridge magnet for a direction hint.
Trading the major news – big risk and also your in the hands of your friendly broker and its not like on a demo account.
Every intraday move bar one is false – true – stop hunting as become ridiculous
If you trade long term you miss the daily “noise” and have better success - yes right then – so you can predict the future –ie the next week and month and know all the news in advance and know everything that might happen that could have an effect on the pair you are trading.?
You have to predict even if you are only after 5 or 10 pip move. – correct – but with highly sophisticated technical info you have a higher probability of getting flows correct in under 15 minutes than you do over 15 hrs or 15 days or even 15 months – FACT
Psychology is more important than your strategy – rubbish, think about it if your strats was 100% and you never lost – you would not have a problem. The fact that most strategies are only 50/50 correct that’s why the psychology part is so important. You need an “edge” that you have to find yourself – it come over years of experience. Compounding also creates the psychogical problem ;-)
Money management is so important – true
Guru’s and tutors know all the answers and have the “holy grail” - roflmao again

You might not agree with my own philosophy – but that’s good as we are all different – with different logic and ideas – but all with a common goal in trading – to make a decent profit or return – which for me is not 30% per annum. Saying that if my capital account was £5 million – I would be content with 30% - but for accounts under £100k – you need to be doubling or more and with intraday shorter term trading combined with letting wins run – you can do it !!

PS – I notice a guy who we might know in this forum – is topping the FX contest this weekend after taking $25K to over $200k in a month ( 900% approx) – OK it was demo – and MM went out the window – but with proper MM and controlled risk 40% per month + is achievable – when you really know what you are doing ;-))

14 members like this

Comment by Romano on September 29, 2012 at 2:17pm: I basically agree with every single thing you said.

Comment by Peter jcp on September 29, 2012 at 7:19pm: Well that's interesting Romano, and too me it shows you have not been easily led by all what you have read - and instead you have an open mind and have wanted to discover more yourself.

When I first started i was so "gullable" and basically believed anything that was written by a so called "expert" in the field. When I went on courses and read other books and studies and kept hearing the same stuff - I kept saying to myself - these guys should know - I will follow them etc etc

After about 2 years and nearly giving in a few times - I decided I am trading to make money - if these ways do not make me money find a way what does.

Seems to me when you really do understand this market and its "games" - you can then profit in so many ways and then it all becomes worth while.

Have a great October Romano - cheers

Comment by colinwbarnes on September 29, 2012 at 7:58pm: Thanks Peter..its one thing reading about and knowing this stuff.. its another doing it..for me thats the psychological challenge..anyways looking forward to October even with all the stop hunting and manipulation...regards

Comment by Peter jcp on September 29, 2012 at 10:24pm: Hi Colin - yes I know exactly what you mean - but trust me over time it all starts to make sense - even the stop hunting ;-) I know you have been with Jim looking at some other pairs in the gate group including the Cad/Jpy and E/J. With the EU having between 40-50% of all currency trades you are bound to get move manipulation and hunts - simply because there is more money to be taken.

The Brokers try to make the EU the most attractive to trade by offering 0.5 - 2 pip spreads rather than 3-6 pips on many other pairs - pulling you in like a lamb to the slaughter. It may be wise to look at the AU and the E/G as well as they at times have easier flows to follow.

What ever pair you are on ifs it during the normal European hrs pop into the gate chat and ask a few of us what we might be seeing over the next 30 mins -2 hrs and if it agrees with your analysis - then that might help a bit.

October will be good for you - remember step by step - every week and every month it will start to get easier and you will have more wins.

Regards

Peter

Comment by Pipomatic on September 29, 2012 at 11:35pm

Hi and tnx for the post.

Well, I don't agree with all of your points in the list ..

No. 3: If the guys make money with a win ratio of 30% and they're not frustrated at trading .. fine to them. Certainly they must be psychologically stronger then the ones with the 70% win ratio. But as far as they make money consistently .. it's OK.
No. 9: I agree that KISS is not enough for trading .. it's not even enough in human relationship between a male and female .. after some time ;) But keeping is simple sometimes isn't so bad. I think that understanding of PA should the the base for every strategy .. even indicator based.
No. 12: yes, the market is manipulated .. but from which TF up the manipulation is irrelevant? IMO trading 1h charts and trying to catch 1h swings with RR at least 1:2 at multiple pairs could also be a intraday trading and the manipulation will not have such influence. And if a trader knows where to put stop losses could be very profitable also ..
No. 16: we can still miss the daily noise on the 1h charts and put a SL and TP and exit the trade only by hitting one of it .. buy support / sell resistance until is broken .. day in and day out also on 1h charts
No. 18: when a trader have consistence he/she have all. When the consistence is lost .. we need to find why and fix the problem. Could be psychological or anything else ..

Regards

Comment by Ricardo Kempff on September 30, 2012 at 2:29am: Well, what if someday you are catched with 10 or 20 loses in a row? For the moment my winning rate is 35% and yes having 1:3 rr is not an easy thing to do. You have forgoten timing and real rr. Me personaly i can have a good analisys but if the entry was too early or too late it is one more lose. My SL is 25 pips and my TP is 75 and yes it is difficult to get the 75 pips but i normally close orders manually and still having more than 3 reward. How? well normally i don't let SL to activate, i close it manually before it happens, sometimes in -15 and if I close an order in +50 pips, well that is more than 3x15. To avoid myself on having a losing streak for too long i just make one trade per week and once the monthly balance is positive I just get off for the rest of the month, I am not agresive. I am a swing trader but the broker and its provider (who supposely cannot know who I am or where my stops are) might think I am a scalper, or at least provider will get me lost with the bunch of scalpers. With so little trades opportunities available I make a better work analising because I have more time for it.

Comment by Peter jcp on September 30, 2012 at 10:09am: Hi Pipo and Ricardo - thanks for both commenting with some great points that are worth exploring more.

Yes - I am probably wrong Pipo to criticise any strategy that makes money for a trader and as you say if some trader can live with a low win % ratio - but catch nice runs that give them RR's of over 5+ and they make money on their few wins - WD to them.

To me though, I think it shows they are not reading the "price" and the market well and end up via the "law of averages" catching one of the good runs that should happen at least once a week ( or month nowadays lol). That particular strategy worries me - and although we hear many commercial pro's are happy with it - something does not stack up in my mind ?

I also think your excellent in depth analysis on the EU you have posted today - shows that pure KISS in isolation is not as powerful as a full top down "in depth" study.

Your last comment on no 18 also brings in RIcardo's point - re the psychology aspect of maintaining a winning attitude. I can draw on my own experience on this one - because I hit a bad "wall" on my trading success many years ago - at exactly the same time i had been compounding aggressively.

I had been fairly confident with my win ratio at that time - and when i reviewed it weekly on normally over 50 trades - I would have some great weeks of over 85% and then other weeks of only 60-65% . I would therefore average and think well - I am at least maintaining 70% + - so in theory out of every 10 trades - a good chance of getting 7 correct.

That's were theory is great - but in the real world - no - its not always the same- as Ricardo quite correctly says.

Think about it 70% success is approx 70 winning trades out of 100 trades - and also 30 losing trades. What happens if you have say 17 of these 30 losing trades all in one go??

You will be delighted if you get say 35 of your winning 70 in a row - fantastic - but 17 bad in a row - could nearly ruin your account - and send your state of mind into "panic mode" or "meltdown". It can happen - it has happened to me - although not 17 in a row - but because I am aware of it - I can now deal with it and have my own "cheating" methods to break the bad run.

I personally think you are correct in being "fluid" Ricardo. I remember before I got into trading investing some money with a experienced trader ( so I thought) who had fixed mentality logic. His daily target was 50 pips ( not 46 or 60 etc - exactly 50) and his stop loss fixed in stone was 35 pips - ( not 26 or 42 - exactly 35).

His results had been fairly consistent ie -300-450 pips a month - and he would set his one or two trades up early AM - and then play golf 4 days a week. I use to watch some of his trades not fully understanding and see many time his trade being in profit 39 - and even 46 pips - only then to be stopped out.;-))

Similarly - some day he would get stopped out from entry within an hr at say 43 pips the wrong way - and then the pair would go the way he predicted - up 120 pips. That was so frustrating - and within 3 months i pulled my money out - he had made a profit and I was pleased - but it could have been so much more if he had been of "fluid" mentality - rather than fixed in stone

Out of interest Ricardo have you had weeks and months where you win ratio's have been over say 65% - and not just on say 5 trades but on at least 20 ( ideally statistic wise you need over 33 to start to get a realistic view) ??

Comment by Peter jcp on September 30, 2012 at 12:13pm: Re - Trader of the 2012 year contest - I just been looking at it again and realise it's only been running for 2 weeks - and not a month so far - that makes the top 10 guys even more impressive. It will be interesting if an average 250-450% per week growth can be maintained to the end of the contest in approx 4 weeks time?

Theoretically - its should grow exponentially as the account size increases against the original stake which is static

That's why any trader interested in entering say today ( Keith;-) ) would find it difficult in the remaining 4 weeks to knock the top 5 off their perches. Its possible as I have seen in another contest result increases of 5000 and 7000% in a month ( one was live as well - but the guy was only on a original stake of $300.)

Also I find it interesting that the top 3 winners get nice prizes which is great - but also free tuition / forex courses info etc. I get the feeling those prizes should be going to the bottom 3 rather than the top 3 ;-))

Comment by 2ndSkiesForex on September 30, 2012 at 12:20pm: @Peter,

The broker isn't 'making' the EU spreads smaller because they are trying to pull you in. Its a question of pure liquidity. It is the most liquid pair on the planet (over 50% of all spot transactions offering two of the most liquid individual currencies on the planet (USD #1, & EUR #2), and thus - the one with the best prices or spreads on them.

To think the brokers are intentionally making the spreads low to suck traders in is a misunderstanding of basic supply/demand pricing.

Spreads are relative to liquidity. If the EURUSD was all of a sudden not the most liquid and often traded pair (say 5th on the list), the spreads would go up. That is why the most liquid pairs have the smallest spreads as a whole.

You really have to stop with this whole idea that in every aspect of the trading game, brokers are manipulating something (i.e. in this case spreads) to suck traders in. They are simply offering what they get from the ibank market, then increasing the spread just a little.

Remember, what is the best client to a broker?
Its either a) one who consistently makes money but not much

or b) one who consistently makes money and a lot of it, thus increasing their spread size

why?

because if that client blows its account, they have to spend money and time (lots of it) acquiring a new client. avg. acquisition costs for a broker to get a client can be up to 3k, and if they just fund the account with $500, its unlikely they will get their money back.

So its actually in the best interest of the broker to keep the client in the game, for if they lose them, they have to get another.

Its amazing how much you interpret about the game of manipulation that is not there.

More of the manipulation is on the liquidity provider side, along with the larger funds that can influence the market. But, Pipomatic brings up a good point - that after a certain time frame, the 'effects' of intraday pricing moves by HFalgos, etc. gets smoothed out and no longer becomes an issue.

You are just ultra-sensitive (and likely over-sensitive) to it because you trade mostly on the time frames they are operating.

One other thing;

A survey was given to many of the Market Wizards (from the book) and other highly successful traders about which strategy they would rather have;
Strategy A) which has a 70-80% win ratio

or

Strategy B) which has a 30% win ratio

Both make money, but they were asked to choose.

All of them said they would prefer the strategy with the 30% win ratio.

Hmm, I wonder why....

Kind Regards,
Chris

Comment by Peter jcp on September 30, 2012 at 1:57pm: Hi Chris - thanks for commenting on some relative points that - I partly agree with you on.

Both our views should be respected - because we come from opposite sides of the spectrum. I believe you will 100% defend the industry and I will 100% defend the poor retail traders – simply because I am one ;-).

The reason beings as follows -

You are a very professional commercial trader / tutor who as come up via the industry after working with FXCM and then financial commercial organisations before commencing your own fund and becoming an author and tutor etc.

I have never worked in any part of a financial institution - so therefore I am a complete novice in terms of the day to day activities.

However I have two very important strengths that set me apart. The first one is my career background - and being involved at Director level with Sir Richard Branson's Virgin companies and Pacific Dunlop PLC. I was involved in monopoly commission disputes and many accountancy and marketing legal battles - as these companies had been seen to be – let’s just say taking advantages of certain circumstances (ie cheating)

For a period of about 6 years - I became an expert at "taking advantages of circumstances" in the business world. (ie cheating). Many of my collegues were fascinated by my skill at spotting a "fiddles" and use to joke in another world I must have been in the mafia or some other crooked organisation. I am also ashamed to say initiated some actions that were totally bias to the business I was being employed by

Nowadays I am older and wiser and a successful retail trader - but my "nose" still smells " fiddles" everyday.

In the past the massive Financial institutions always thought they were too clever by far and would always have the way to get away with it,. That was probably summed up by the quote from the Goldman Sachs CEO - of saying we are doing gods works of redistributing money.

Well in the last few years they have now shot their bolt ;-)

Finally according to my contacts at the Monopolies board the FSA and the CFTC are finally realising what all these "rogues" have been getting up to.

I noticed Chris you commented the other day about HFT robots and the new restrictions that are be imposed. HFT as been one of the elements that is leading to their down fall.

HFT initially meant market makers could be nearly 100% correct and just milk the market. Their excuse or marketing view was we are making more liquidity for all other traders – yes true – before then ripping them off;-)

The methods nowadays use by the market makers (allegedly and might not be all the large players) involves balancing order flows – before going in for their “kill”. It might have been difficult to do 10 -15 yrs ago – but not now.

Large Institutions can always blame “rogue” traders ( they got away with that in the past) but with the help of more insider “whistleblowers” – there are certain aspects of play – that point firmly at manipulation. ATM – I don’t know when it will “hit the fan” .

With regards to brokers – I would agree with you – they are not all bad. Its like everything in life there will always be a small element and I believe even a reputable organization you worked for like FXCM have been fined.

I will not name one broker I found slowing down the “tick chart” I was using. I started to notice purely by accident that the 3 min chart was moving prior ( up to 3-4 pips) before the tick and one minute. When I got my solicitor to point it out with them – they apologized – blamed glitches in their platform and my internet connection – etc etc – and then stopped it ;-))

Chris – with all due respect you will not know some of the information that I have acquired and passed on to others that I hope are trustworthy and will act on it.

With regards to your last comment on the 70 % and 30 % success rate strats –I have heard this before – and I just have to laugh at it.

I suppose these same guys would prefer 100k after 2 years than 200k in one year.

There was either another “caveat” in the question – or I would have to say those so called pro’s are just not logical mathematicians, Its sounds to me like some Jessie “myth” or another “red herring” put out by this industry ;-)

Finally – I really don’t want to “bite the hand that is feeding me” – in fact in way I hope HFT is not restricted along with other factors used – simply because for the majority of the time I have cracked it – and it helps me to prosper more

Have a great October

Regards

Peter