What I learned and changed this year

Is your life and trading out of control?

The following words are not my own, they are from an "Evolving Trader" - a trader-friend who has devoted herself to self mastery and becoming a successful full-time trader.

Her trading focus is on stocks and stock options. That works for her. My focus is different. Yours might be too, but I'm sure you will still find her words perceptive and encouraging - Numb Trader.

What I learned and changed this year

Thought this might be a good time to review the year and what happened in it. For the purpose of discussion and the chance to take a critical look at what we are doing I suggest the following questions :

1. What significant things/lessons did I learn this year?

2. What did I change this year?

Things I learned:

a. TIMING IS EVERYTHING - time is precious and using it well is the art of investing, trading and living AND practising patience is a trading virtue

b. SIMPLE IS BETTER

Things I changed:

a. 1. My primary focus is on my longer term portfolio, I sell and buy options around that portfolio to generate additional income. (I found I was chopping and changing too often and the overtrading was working against me so taking a longer term perspective got the overtrading thing out of the way.) I am still developing separate plans for medium to shorter term trading.

a. 2. I changed the timing of selling options to sell calls at or soon after peaks and puts at or soon after troughs in the stock cycle (or as best I can see them); sell puts for longer periods at lower strikes.

a. 3. I stopped trying to buy back instantly into a stock when the stock was lost through assignment - I wait for the right signal to re-enter at the right time.

a. 4. I started paying someone to do housework I loathe.

a. 5 I am practising forex trading on simulator accounts until I am ready to go live.

b. 1. I changed my software and quit using all those confusing indicators - now only use the phoenix indicators (BOF and EWS which work together for entry and exit signals) as well as 3 simple moving averages 20, 55 and 200 day for a longer term perspective.

b. 2. I set up goals for the year for all aspects of life and check thatdecisions I make (including investing and trading) are consistent with those goals.

There's plenty more but these were the critical ones for me that have reshaped what I do, why I do it and how and I do it.

Evolving Trader.

Playstation Trading = News Trading

How to trade the news

News Trading is purported to be a way of trading economic news announcements in the FX market. This is a system taught and promoted by a number of traders.

Having tried this method for a number of months I have concluded that AT BEST, news trading can only augment longer term trading strategies. There are just too many idiosyncratic variables that can affect the outcome of a news trade.

These problems include:

1. Broker unreliability: currency dealers historically have been unresponsive or even offline during the release of significant news reports.

2. Speed problems: if you are not able to act super fast, trading right after a report can get you in at the top or bottom of a move. If you're too fast, you can get killed by a revision (see below).

3. Slippage: order execution has historically been poor in the moments following significant news reports.

4. Report Revisions: A report can come out in one direction, and moments later, the previous month's revision can push the currency pair in exactly the opposite direction. This can cut you off at the knees while you're in the middle of a short-term news trade.

5. Potential for huge losses: the bigger reports can move a currency pair 100 pips in just a few seconds – and this move can result in huge losses for traders who bet in the wrong direction, set their stops too wide, or who experience the problems mentioned above.

Given that anything can happen in the moments after a news report, I've stopped trading this high-adrenalin method and have switched to trading longer term, less random movements.

I'll keep the high-adrenaline screen time to playing with the Playstation, not with my real money.

Newsletter Guru - John Mauldin

A Happy Man - John Mauldin

I recently discovered a refreshing and easy to read investment newsletter writer - John Mauldin. He's written a terrific book on how to best invest during a secular bear market:

And edited a more recent book:

If you haven't been trained in economics and would like to know why different markets go up and down when they do, then I highly recommend you subscribe to his FREE weekly newsletter Thoughts from the FrontLine.

You can see more about John and subscribe to his newsletter via his Web site: http://www.johnmauldin.com/.

It's great to see someone who makes the markets easier to understand without trying to make a buck off every word he writes. He will increase your understanding of the markets.

FX Alert Service Review - Secret Forex Society / King Forex Signals

Don't be fooled, "Secret" & "King" are manipulative words that imply they have the Holy Grail of FX Trading

I was a Kingforexsignals subscriber for two weeks (which morphed into Secretforexsociety) and I decided not to continue with it.

There are a number of reasons that led me decide to opt out. Please note, my two weeks is not indicative of how successful Kingforexsignals has been in the past or will be in the future. The signal success rate was disappointing in that brief two week period (first two weeks of September 2006), but this wasn't why I left. See below.

There are two sides to the service, Rob's buy and sell signals during the London and New York trading sessions, plus Felix's so called "Secret News Service" which runs at significant economic news announcement times (usually 8:30am New York time). This is a text-based number displayed on the screen that shows how far an economic number has deviated from what was expected (such as GDP, NFP, etc.) If the deviation is big enough, then this becomes a buy or sell signal. Economic announcement deviations are the cause of the price spikes you occasionally see in currency cross rates.

To use this service you need to ensure you can monitor Rob's potential signals during his trading sessions. I couldn't afford that much time in front of the screen, even with the text-phone service, but this might not be a problem for others. I had to learn this by trying it. Because of my time constraints I didn't see all of Rob's calls, one that stood out for me however was a LONG call on GBP/USD on 12th September 2006, which was followed by a stop loss signal a few moments later. About twenty minutes later, the stop loss level was hit (that's fine, losses happen), but then Rob said he was still in the trade, and as Murphy's law would have it, the price started going LONG again. This pissed off a couple of people who then requested more information about when Rob exactly enters and exits his trades + someone asked why he wasn't following his own stop loss level. Another 10 minutes went by and the price started to drop again and Rob announced he was stopped out.

This isolated example highlighted the primary problem with Kingforexsignals for me: You are utterly dependent on someone else giving you signals based on his perception of market orders/depth (Rob has institutional-level access to FX orders). You have no way of verifying/confirming these signals, so you are committing money to trades on blind faith (albeit with some assurance that his signals have been good in the past). This style of trading doesn't help me achieve my goal of trading independently (learning to fish instead of being given a fish).

Subscribers in the room are frequently flamed by other devotees if they pose a legitimate question. In the above trade example (why didn't Rob follow his own stop loss level originally) this was flippantly answered by another member with "stop loss levels are a suggestion". In one sense this is true, but if you're paying so much money each month then people are expecting a little more certainty with the signals than that. People want to trust that they're being told the WHOLE truth, and not find out later that something else was going on. This is how results can be easily manipulated.

A word of warning, in the chatroom there's frequent course language and lots of posts with links to pornographic sites. This boring juvenile behavior made me feel like I was wasting my time. The most tedious part of the chatroom was the constant moaning about how bad all the FX brokers are. This got tired really quickly too.

At the time I left, Rob started saying he might need to restrict the chatter to just FX because of the hot-headed flaming and name calling between the members. This gives you a sense of how the chatter degenerated in the name of 'fun'.

I wouldn't recommend this service to beginners because you're not learning to develop a system for yourself which reflects your own perception of the market. To me this is a big drawback. If Rob gets hit by a bus, then what have you learned or can implement for yourself? Nothing, because you can't see the market depth and can't learn how to interpret it. I didn't really appreciate that this is all an alert service is, just buy and sell signals with little or no education.

Rob's signals might be worth trying if you have the time and want to augment an existing trading method that you already use since he lets you know when bids or offers are providing support/resistance levels in the current market action. This might be really useful for some.

The other part of this alert service is Felix's so called "Secret News Service". What he's trying to do is give you the economic number faster than you can get through other speedy news services, such as Bloomberg, Reuters, Trade the News and Need to Know News, etc. Being fast with the number is desirable so that you can get in early on those huge price spikes and get out quickly with a profit.

Unfortunately, most retail FX brokers either don't process your order quickly enough to take advantage of these news spikes or they widen the spread, thus either reducing your potential profit or increasing the risk of losing money on the trade.

Given the reality of how the retail FX broker platforms operate, in my opinion the speed of getting into the trade becomes far less important then knowing what the economic number is and getting in once the spread reduces or the platform starts accepting orders again (maybe after a minute or two). Big enough deviations in the economic numbers from what was expected will continue to move a currency pair in particular direction, so missing the initial spike doesn't mean you can't make a trade on news announcements.

For me, the high cost of getting the news just one or two seconds more quickly (and at times no faster) through kingforexsignals/secretforexsociety compared to other much cheaper news services just wasn't worth it. Why pay money for fast news if you can't use it?

Rob and Felix are well-intentioned guys and want to make their combined signal service work (my refund was swift). But if trusting someone else to give you your success is what you want, then this alert service might work for you. Personally, I think you'll have better long-term success trusting yourself.

A Must-See Music Video for Every Trader

If you struggle to come to grips with the fundamentals of the market, then have a look at this video. There's more to trading then watching two lines cross-over on a chart. There's a reason for the music of the markets. The music video was produced by Michael O'Rorke of Columbia Business School's Follies.

The Holy Grail of Technical Analysis

Q. What does a trader do when they apply to a chart all the indicators they've spent their hard-earned money learning about?

A. They flip a coin and use money management!

Live FX Prices

Live Equity Prices

Free Resource - Currency Trader Magazine

My trading focus since last year has been primarily on the futures commodity markets and currencies. A free monthly magazine for those interested in foreign exchange markets is Currency Trader Magazine. It includes tests on the performance of different indicators and also addresses current fundamental factors that may be moving currency pairs. Once you subscribe to the magazine, they allow you to download the current issue and just the previous issue.

Read the magazine for free before someone tries to sell you the same information by stealth as an ebook.

Free Resource - The Trading Naked Web Site

Here's a web site that will keep you busy with plenty of straight-to-the-point advice, and it's free: http://www.trading-naked.com/Setups.htm

I've directed your attention to this trader's discussion about trading setups - when is the right time to enter a trade?

I have experienced the frustration he describes, and heartily advocate his conclusions, for example: "You only need to master one setup to be a consistently profitable trader. "

I've found trading regularly using one primary indicator gives me better results than doing very little, waiting for all the planets (indicators) to line-up.

Get in there and get dirty and learn, you won't learn trading by reading, you gotta trade to learn how to trade.

Free Resource - Stocks, Futures and Options Magazine

You might as well access free information where you can, it's often as good as paid subscriptions, the trick however is to READ IT.

You can sign-up for free online access to the Stocks, Futures and Options Magazine here: http://www.sfomag.com

Click on the Subscribe button, then click on the Online Subscription option and follow the prompts.

Have a look, there are good articles in SFO magazine.

2006 - How are you doing?

Well, we're hurtling towards the end of the first quarter of the year, and it wasn't that long ago that a lot of us were thinking about what we would like to achieve for 2006.

How are you doing so far?

When we are learning a new skill like trading or we want to change our mindset over an old habit we no longer wish to possess, it is virtually impossible to become a master or to change that habit overnight.

We are required to practice and hone our new skill level. Especially when changing non serving beliefs and habits, it is so very easy to slip back into the ‘Old Way’ of thinking or doing.

I just wanted to remind you, to not give yourself a hard time if you see yourself slipping back or failing to master a new skill set fast enough. Instead “Keep Your Focus” on the end result by reminding yourself at least daily about what it is you want to achieve.

Keep your focus!

Higgins knew how to wax on, wax off.

Here's a story that might help you with your trading:

There was a 10-year-old boy who decided to study judo despite the fact that he had lost his left arm in a devastating car accident. The boy began lessons with an old Japanese judo master.

The boy was doing well, so he couldn't understand why, after three months of training, the master had taught him only one move. "Sensei," the boy finally said, "Shouldn't I be learning more moves?" "This is the only move you know, but this is the only move you'll ever need to know," the sensei replied. Not quite understanding, but believing in his teacher, the boy kept training. Several months later, the sensei took the boy to his first tournament. Surprising himself, the boy easily won his first two matches. The third match proved to be more difficult, but after some time, his opponent became impatient and charged; the boy deftly used his one move to win the match. Still amazed by his success, the boy was now in the finals.

This time, his opponent was bigger, stronger, and more experienced. For a while, the boy appeared to be overmatched. Concerned that the boy might get hurt, the referee called a time-out. He was about to stop the match when the sensei intervened. "No," the sensei insisted, "Let him continue." Soon after the match resumed, his opponent made a critical mistake: he dropped his guard. Instantly, the boy used his move to pin him. The boy had won the match and the tournament. He was the champion.

On the way home, the boy and the sensei reviewed every move in each and every match. Then the boy summoned the courage to ask what was really on his mind:

"Sensei, how did I win the tournament with only one move?" "You won for two reasons," the sensei answered. "First, you've almost mastered one of the most difficult throws in all of judo. And second, the only known defence for that move is for your opponent to grab your left arm." The boy's biggest weakness had become his biggest strength.

----

One market, one pattern and win.

What's your one thing for 2006?

See where wax on, wax off gets you!

TRADING GURU - Mark Douglas

"Trading in the Zone" Book Review

Don't get me wrong, I like Mark Douglas and I like the ideas in his book Trading in the Zone. The big problem I had with his book however was just getting through its 200-odd pages of turgid waffling. I read a lot of books and some are a breeze to read, but this book is as painfully slow as the Dow Jones Industrial Average on a Sunday afternoon.

I wondered if this book was a transcription of a talk, with the constant restating of the same ideas using different words so that I would "get it," like you might hear in a lecture. OK Mark, I GET it! Next Point!

Enough with the complaining. If you have trouble pulling the trigger, have been burned by a string of bad trades or are thinking of looking for another career or hobby then Mark's book is worth looking at.

It's not until the end that you get to the meat of the book, and there you get a practical implementation of his 5 principles of the market, which helps you approach the market from a realistic perspective:

1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

So just because you might have a string of losses in a row does mean that the next trade will also be a loss.

Mark gives you a trading plan to follow to help put the 5 principles into practice and this practical application of the principles is what makes this book worth the effort.

Unfortunately, Mark doesn't include all the record-keeping aspects that are necessary with implementing a trading-plan, so please beware that he isn't giving you a complete trading system, however he is focusing on one important aspect - the mind.

So, if you've been battered by the markets or are frightened by the prospect of losing any money while trading then have a look at Trading in the Zone.

Numb Trader Steps Outside

Trading Course Scams

This tosser is a model, not a trader.

If you see advertisements for trading courses that emphasize how great it would be to work from the home or the beach or go on and on about becoming financially independent, then IT IS A SCAM.

What do I mean by a scam?

A scam deprives you of your money through deceitful advertising. These ads (in brochures, TV or Web sites) sell a dream, but the reality of trading is quite different. To trade successfully, you need to be disciplined all the time and that's not what they tell you. Because trading requires taking on new habits it therefore doesn't suit everyone.

So don't be swayed by stupid pictures of people "working" from a yacht or the beach.

Marketing-hype gives you a false impression of what it takes to succeed at trading. What happens to MOST people who fork-out hundreds or thousands of dollars for such courses is that as soon as they get home and start paper-trading, they soon discover how much work is involved and give up. I've seen it happen many times!

That's why these advertisements are fraudulent. They're not telling you what trading really involves. As it turns out, most of the really useful information they give you in these courses you can easily get for free from books at the local public library or from the internet.

Marketers get your hopes up and make you think that THEY have the key that will make trading profitable and easy. But that's not what happens. They make your wallet lighter but they don't make trading any easier.

Are any courses worth it?

The courses that are worth paying for are those that offer you on-going assistance to help you learn the discipline of trading their system, long after you've completed their course or downloaded their ebook.

Do they offer to answer any questions you have for at least the next 12 months? If not, then I wouldn't buy it.

If they have an online or local support group or chapter trading their system then that's even better. If you can get-together with like-minded people and more seasoned traders who are willing to assist you in your quest to become a disciplined trader then you are more likely to succeed.

If a company is not willing to nurture you and take responsibility for what they're selling, then this indicates to me that they only want a quick-sale by selling a dream. They're not teaching you to become a good, disciplined trader.

Caveat Emptor! - Let the buyer beware!

Trading Currencies, Commodities, Indices, Stocks and Options

This blog will be where I'll post things that I've come across and use to be a numb trader. No pain, no euphoria, just numb trades.