Setting up your system for newbies

While this is primarily focused for new traders, veterans might find this useful too. To begin, it is logical to consider what is equilibrium? Once you can figure out what is considered to be equilibrium, or the middle of the range, then you can adjust your settings to trade when price moves away from it.

Consider this: Most traders rely on the 50 EMA and 200 EMA as major support and resistance lines. Since most people would like more profit and more activity in their trading, then you should probably consider the 50 EMA as the primary equilibrium price. While obviously price goes above and below it, and occasionally bounces off of it, it is as good a place to start as any other. So, if you are using the 50 EMA, then put it into perspective. It means you are looking at 50 periods, right? There are 24 hours in a day, so the best timeframe to see 50 periods would be the 30M chart right? And, to further validate this timeframe, what if you wanted to use the 200 EMA as equilibrium? There are about 120 hours in a week of trading, so if you use the 30M chart, then you have 200 periods for the week.

Hopefully this makes sense. It doesn't matter what timeframe you decide to trade with your system, you will get more accurate indicator settings if you develop the system using a 30M chart. Good Luck:))

Market Timer Algorithm

The latest flavor of the week is the Market Timer Algorithm.

The sales video keeps dying around the 12 minute mark, but that is okay. From what I heard in those 12 minutes, this guy is kinda making up facts. Understandable, since he is marketing something, but obviously a scenario is only a scenario. I am sure my idea of probability is different than his so I would likely not be interested anyway. Besides that, I am thinking he probably wants to sell whatever it is for some ridiculous amount of money and I am about 99.999999% positive I can already out-trade him. I only got my degree from an actual top university and graduated Summa Cum Laude (that's all A's in every course from start to finish). I always smile a bit when I hear guys tout themselves because it reminds of the scene in Armaggedon, where the scientist tells the general..."I know the President's advisor. We went to MIT together. At a time like this would you rather take the advice of someone who got a C- in AstroPhysics, or someone who got an A?" I hope you understand what I mean:))

So I don't know what the content is, but from looking around the page it appears to be about the stock market and maybe options?

I will tell you how to make a killing in options. It is really pretty easy, especially since the stock market has tools to track volume. But, if you have the Investools search engine, do a search for Insider Trading in the last 2-3 months. Once the search engine gives you the results, arrange them by the ones with the best fundamentals. Then open a yearly chart and see where the 12/26/9 macd, 14 period stochastics, and 21 period SMA are in relation to the price. If they are not overbought, go buy an option. It is really a no-brainer and extremely hard to lose. Of course, this strategy will not work in Forex, and the indicator settings are extremely crappy if you actually want to make money in Forex, so I wouldn't recommend using them.

I know I am trashing this system without a full understanding of it, so I am sorry if it's the cat's ass for you. If you like it, judge for yourself and do as you please. After all, there is more than one way to profit from the markets. Each of us has an opinion of how to do, and even though I might disagree, it is only my opinion. I do enjoy seeing other people's ideas because I never know if they might lead to an improvement in how I trade. So, please do not take it personal, okay? The real systems, like mine, never come to market because they actually work:)) Sometimes I am just annoyed by all the junk that doesn't.

I am also disappointed with the macro chart I saw in the part of the video that was working and the analysis of the market. His analysis was that eventually the price will come down. That's comforting. I know right where to enter now....gag! Gotta love historical chart analysis, right? LOL!! An understanding of market behavior is much more important than any indicator. If it wasn't a historical chart, what would he say if it blew right through the resistance? I suppose nothing. He would just find another example. Soooooo clueless, and yet trying to make a fortune teaching people to trade when he doesn't even know how himself. So aggravating!!

Sorry my soapbox is getting rather large. I am just really getting tired of a new flavor of the week, every week. It is like the carpet baggers infesting the South after the Civil War. Every week some new moron comes out of the woodwork with the latest greatest thing and doesn't have a clue what he is talking about. ARGH!!

Not interested in affliate sales

While I am thinking about, I want you to know I am not interested in selling you another guy's junk. So, I won't have links to buy systems, and I certainly am not going to link to google for sporadic and unreviewed ads to appear on my site.

No, I am prepared to take your money on the field of battle...not under the bleachers:) Let's rock!

02/12/12 Results

USD/CHF:
Buy at 0.9127, Close at 0.9153. +26 pips.
Sell at 0.9153, Close at 0.9110. +43 pips.
Buy at 0.9113, Close at 0.9184. +71 pips.

AUD/USD:
Buy at 1.0696, Close at 1.0739. +43 pips.
Buy at 1.0741, Close at 1.0770. +29 pips.
Sell at 1.0762. Close at 1.0732. +30 pips.
Sell at 1.0745, Close at 1.0708. +37 pips.

Total = 7 winning trades, 0 losing trades. +279 pips.

Oh no! Another $1997 system!!

Wow. The sales page finally arrived for the system I talked about earlier. They want $1997 to show you how it works. Wow! So, since I make 100 times more pips than they do then I could sell mine for $199,700, right? Unbelievable. See what I mean? Institutional traders spending other people's money in order to have large account balances, while using strategies that the average "person" cannot afford to employ. Then, because their systems really don't make that much, they periodically sell systems to make enough money to pay their bills:)) Do you know these guys can actually have a losing month because of the time it takes for their trades to end? You might think 1200 pips on a month-long trade is good, but that is investor thinking, not trader thinking. It is like the age old question of the penny. Do you want $1M pennies right now, or start with 1 penny and double it everyday? While they were busy make 1200 pips that month, I made 3800. Interesting:)) I say that sarcastically. It is actually disgusting, but if you haven't made any money trading Forex yet, and you have $2000 more to give away...they are your guys((((

Forex volume and the Fisher Bulls/Bears Indicator

Volume in the Forex market is not measured like the familiar method of the stock market. In my opinion, anything associated with volume is useless.

The next best thing is bulls/bears measurement. This can be done in a variety of ways, but I will mention 3 most common. The first is the bulls/bears indicator. This indicator is not very user friendly and I do not recommend it. The next is an mt4 product called the sefc indicator. It is a box system that changes color according to buying or selling behavior. It will adjust, or repaint, quite often, and is therefore useless for actual trading. Looks awesome in history though:)

My recommendation is to use the data of the sefc indicator as a histogram, with a line graph installed on top of it. The most common histogram of this data is called a fisher yurik indicator. There are some important things to know about this indicator though. First, you will likely see alot of complaints about it because it will adjust to market conditions just like the sefc. Traders call that repainting and it can be annoying to be fooled by your indicator, particularly because a "repaint" means you are losing the trade. Second though, and most importantly, for whatever reason, the formula in the indicator has been altered. I don't know if someone thought they knew what they were doing, or if it was intentional, but the math is wrong. The indicator was meant to be associated with standard deviation and based on 10 periods. Of course you can change the periods, but you have to keep the standard deviation formula intact!! DUH!! If you download it from the internet, be sure to get the version that ends in mq4. Once you have loaded it to your mt4, find it in your custom indicators folder and right click on it. Then click modify. Scroll down until you see this formula:

Value = 0.33*2*((price-MinL)/(MaxH-MinL)-0.5) + 0.67*Value1;    
      Value=MathMin(MathMax(Value,-0.999),0.999);
      ExtBuffer0[i]=0.5*MathLog((1+Value)/(1-Value))+0.5*Fish1;

Change it to look like this:

Value = 0.5*2*((price-MinL)/(MaxH-MinL)-0.5) + 0.5*Value1;    
      Value=MathMin(MathMax(Value,-0.999),0.999);
      ExtBuffer0[i]=0.25*MathLog((1+Value)/(1-Value))+0.5*Fish1;

The indicator will still adjust to market movement and "repaint", but it is much more stable. If it were me, I would change the fisher period to 5. Then I would put a 5 period, deviation 1 bollinger band on top of the fisher. Then I would add a 5 period SMA of a different color. This will change the color of the median line of the bollinger band and show crossovers. While the upper and lower limits are not exactly the same as a 1 period SMA, they are close enough. Now you have a fast acting fisher to possibly give you some advance notice of changes in direction, and with the 5 period bollinger band and moving average you also have a 10 period fisher at the same time. The crossover of the 5 period moving average equates to a 10 period fisher. While I would not use this as stand-alone indicator, I think you will find it helpful in determining price direction.

Next I would experiment with the sister indicator called Fisher Transform. Once again, check the math and make sure it is 0.5 and 0.25 in the appropriate places. While the optimal period setting is 10, I think you will like 8:)

These are not really tradable indicators, but will help you see the flow of the market and can help you validate your entries and exits. If you decide to use their signals, be sure to have some other type of indicator to confirm it. Of course you can always chance it. If you use an 8 period fisher you will outperform the latest robot from Rita Lasker, lol, but that doesn't mean it is foolproof. A signal is not always a signal because consolidation can cause exaggerated movement of indicators.

Renko Bars versus Time Charts

Renko bars versus time charts. I spent several months using renko bars and would like to share my opinion. It is difficult to determine the proper box size to use. Too small, and you are whipsawed. Too large and you are stuck with drawdowns. Alot of indicators will work with renko charts, but even the fastest settings will not react until 2 boxes into the trade. If you have a trade that lasts 6 boxes, you will not be in the trade until 2 boxes signal the entry, and you will not exit until 2 boxes signal the close. That leaves you a profit of 2 boxes. In this case 1/3 of the move. You need 5 boxes to make 1 box of profit. The only option you have is to "guess" where the exit might be and probably be wrong. I am still wondering what I am supposed to do when the market does not move 5 boxes? Punt?

While they look awesome because they eliminate market noise, that is probably also their downfall. When you understand market maker behavior and patterns, you realize you actually need to see consolidation periods and changes in the ATR. These are important clues to determine market direction. These clues are not included in renko charts, and therefore I would only use them for reference and not as my main trading chart.

Three components to successful Forex trading.

In my opinion there are three components to trading. One is fundamental, or news trading. The second is technical analysis, or indicator trading. The third, and only one that matters is market maker trading, or supply and demand. If you want to be successful, you will need to understand all three.

News is required to make the market move. The market does not have to move in the direction of the news though. This is important to understand. In general, good news for a currency moves in that currency's favor and bad news moves against it. This is NOT always the case. Market makers occasionally use news to take your money. Have you ever seen price spike on a news release only to retrace and continue in the direction it was originally going? Happens all the time. However, major economic news will drive a market in the right direction...eventually.

Technical analysis is how the majority of people trade. Me included, although I also use the other two components to my advantage. This involves using some type of indicator, or series of indicators to attempt to determine where the market is most likely headed over your preferred time allotment. Finding the right set of indicators to use, and then finding the right settings to use on them is extremely frustrating though.

Technical analysis is frustrating because of the middlemen. Between you and the price and what your indicators are telling you are market makers and brokers. Their function is to make you lose your money to them. This means that, in essence, it really doesn't matter what your indicators are telling you, they will do whatever they want to do, within reason. Imagine you are the main guy buying and selling currencies for the whole world. You have huge transactions from banks that are both selling and buying. Then you have the small retail traders who have absolutely no influence on the market. Now imagine you just have to fill those orders, eventually, but certainly not all at once. There is no reason you can't play with the price and sell some of the sell orders, then buy some of the buy orders and just do that over and over and over. Meanwhile, this up and down and all around is destroying the retail trader's indicator readings. Add to that, the market makers and brokers can see the distribution between buyers and sellers and will turn the market in the direction of least profit...usually in a hurry. Also realize they can see your stop loss and if it is within reach, and will put you in the negative, there is a really good chance they will trigger it. Finally, speaking of triggers, lol, if you are unfortunate enough to place a pending order on the side of a suspected breakout, you should be prepared to have it triggered right before they race the price the other direction. Are these all things YOU would do if you were in control and had to make money by forcing traders to lose? There is hope though:) In roulette you can bet on black or red, and unless it lands on 0 or 00, you have an almost 50% chance of winning. In trading, it will go up or down, or both at nearly the same time, but you have a 50% chance of being right. The hard part is the wheel doesn't stop turning in Forex, so you have to know when enough is enough.

Isn't this fun?:))

Summa Cum Laude, School of Hard Knocks

I started educating myself with trading in October of 2004. I started out learning about the stock market and stock options through Investools. It was mostly based on technical analysis of yearly charts. Their search engines were incredible and I did very well choosing profitable options.

In April of 2007 I started working on creating a trading strategy for Forex. The strategy I used for options trading did not work effectively in Forex. I believe this is mostly because the volatility is much greater in Forex and you would need alot of money to trade it off yearly charts.

So began a pursuit to match indicators and create a consistent and reliable strategy for the Forex market. I have spent thousands of hours analyzing hundreds of indicators, expert advisors, and strategies. I have been involved with several Forex forums and receive emails daily from a number of self-proclaimed trading experts.

Why should you bother reading my posts? If you have any interest at all of making money trading, then it is worth your time. Unlike the vast majority of Forex "traders", I am not a marketer, nor an investor. I am a trader. Marketers are more interested in selling you their garbage without any real proof it works. Occasionally you get "some" kind of proof, but if you look real close they are either scalping for a few pips per trade and jacking up the lot value to make it look incredible, or they are posting losses along with the earnings to make it seem more realistic. Sometimes I add up those numbers, and I would encourage you to do it, just for fun, and to help you open your eyes to the garbage. They never add up. Even if they did add up, I don't know why anyone would accept so many losses??

Then you have the other group of institutional traders and supposed hedge fund managers. You will recognize these guys cause they will try to sell you strategies to trade 4HR, Daily, or even Weekly charts. Hmm...are you already rich?? You are going to need to be. These guys are completely out of touch with retail traders and should basically be ignored. These are the guys that say losses are alright as long as you control your money management. In other words, predetermine how much money you are willing to lose before you place the trade and be prepared to actually lose it.

Any of this sound familiar? If not, it will soon if you continue to dig for more and more input. I got an email just today with the sender telling me about this "holy grail" system and to listen to the voice of the guy on the video as he explains "just a normal" trade. Hmm. First of all, I don't know who ever decided to call a good trading system a holy grail. From this moment on, I will refer to it as a flying pig:) I do not think we need to associate Jesus to trading, though I would guess many people pray to Him for success:) Second, I compared my system's trades to the flying pig system's trades and I made twice as many pips. So, what would that make my system called? I just call it lfx:)

Short Blog Page Description

Hello. You have stumbled upon my Forex trading page. I hope you will find it informative and inspirational. I do not agree with alot of so-called trading gurus and so I have my own unique way of doing things. I am one of those guys who actually likes reinventing the wheel. As with anything and everything, someone did it first:)

I have four trading friends and together we have bled and sweated together to get to where we are. We are a diversified group, each with their own talents, ideas, knowledge, and experience. Together we have developed a really good strategy and if you like trading Forex, you will like hanging out with us:) We trade to win, and the money is a by-product. None of us has a boss, so we are some of the most dangerous traders on the planet:) Five brainiacs left on their own with no one to stop them:))