The TradingBuddy, an EA to Assist Manual Trading Methodologies

Trading manually is often a very stressful and difficult thing to do, traders will often find themselves with the need to do several mathematical calculations about risk, risk to reward ratio and position sizing in a matter of minutes or even seconds. Throughout my experience in day trading I have noticed that often people fail to apply appropiate money management because they are too concerned about their entries and fail to adequately analyze the risk they are putting into the trade and the risk to reward ratio related with their decisions. Often these negligence is what leads to loses in the long term.

Looking at the way in which my "pupils" have traded, I can assure you that many of them have failed to adequately manage their accounts because they failed to do these calculations which are absolutely necessary to enter a position. I also cannot say that I have never been "weak" and entered a position without doing all the necessary math, just calculating the risk:reward ratio "visually" and trading a lot size which I guesstimate to be near the percentage of equity I want to risk. I realized that I tend to do this a lot more in day trading than I do when trading my long term methodologies because things tend to happen a lot quicker.

For this reason I decided to build a simple expert advisor which would help me calculate all the necessary values and help me to quickly realize if a trade has the risk characteristics I desire or if it does not fit my money management profile. What the TradingBuddy, as I named the EA, does is pretty simple. You load it on the chart and input the desired TP, SL and EN (entry) levels of the trade you wish to take along with the desired risk percentage you wish to allocate to the position and the position's type (0=Short, 1=Long). The EA will then do the math and display on your screen (on the top left corner), the reward to risk ratio of your trade, the lot size you need to trade to risk a loss of the percentage you input and the entry you would need to make (without moving your SL or TP) to afford a 1:3 risk to reward ratio. This is the main information I require when I place a trade and having this EA do all the calculations at lightning speed has proven to be a wonderful tool.

There are several great advantages of having this information quickly. I get to quickly evaluate if an entry, TP and SL targets allow me to have a good enough risk to reward ratio, it allows me to see if my SL is too tight and I'm being too greedy (risk to reward ratio extremely low) and it also suggests me an entry with a 1:3 risk to reward ratio which has sometimes come in handy. You also get to know the exact lot size you need to trade in order to risk X percentage of your equity, something which is great to have a very precise money management system. You can also change the input values as you want after you get some results until you arrive at a trade which has the desired characteristics you want.

The TradeBuddy has proven to be an invaluable tool for me and the people I am trying to coach in trading as it provides an effective way to have information about a future trade's money management before entering any orders allowing one to quickly gauge the effectiveness of the trade. If you are interested in the TradeBuddy you can download it absolutely for free. Just log into the FTP server of my S&R trading system at ftp://fxreviews.exavault.com, login : journal, password : trading. You will find the EA there.

If you are interested on my work on automated trading systems and how to start your journey towards long term profitability in the forex market using expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Lessons in Trading Psychology... Removing Intuition

As I told you last time I talked about my little project to help two completely "new to forex" and young people learn how to trade forex, trading psychology and the ability to control ones emotions is vital in order to be successful in this business. However there is no greater enemy and no worse problem in forex trading than trading above one's own emotions and personality traits. The evident reason why it is not easy to see this when your starting to trade is mainly because there is, at the beginning, no "strong" evidence that suggests that your emotional trading is "wrong". As a matter of fact, many new traders start with very good results, doubling or tripling their accounts in little time. However these results are never permanent and with time the market cashes on the uncapped exposure that is "emotional trading". How can we remove this daemon from our trading ? How can we teach new traders to trade with rational analysis instead of red blood emotion ?

This is not easy task. During the years I have made and tried many emotional techniques but I haven't found one that works all the time. Depending on the actual person's traits and their actual commitment to the technique it may be difficult or sometimes even impossible to do. However I have seen that the best approach to defeating yourself when trading is to learn, truly learn why your emotional decisions are not the decisions you should follow.

My approach is quiet simple, I will ask a new trader NOT to restrain itself from any type of trading decision he or she wants to make. You want to buy because the sun is shinning ? Buy. You want to sell because you have a "hunch" that the GBP/USD is going down ? Then sell. The only thing I ask from traders is that they keep both things separate. In one account you will trade emotionally and on another account you will trade rationally. When you take a rational trade you need to log into your journal the exact reasons why you entered the trade, how much you traded, when you entered, when you will exit, etc. All these criteria needs to be crystal clear. On you emotional account, you will do the exact same thing, only that "any" criteria will be valid since it is just an account to trade "whatever".

The very important aspect is that the emotional account will be a live account while the rational account will be a demo account. Then you will truly see all your emotional aspects into play when managing real money while you will have no incentive to be emotional on the other account because it just does not represent real capital. In the short term people may find that their emotional trading is much better than their rational trading. Of course, this success will be limited and it will eventually lead to the wiping of the live account while the demo account will be far from a wipe out, with some draw down in the worst case scenario. When I have done this I let people wipe the live account which is usually a 100 USD micro account which is a small price to pay for the extremely valuable lesson learned.

The only way to defeat your emotions is to realize through experience that your emotions and "hunches" do not allow you to be profitable in the long term and that emotional trading leads to an uncapped market exposure. The only way to truly know this is through experience, there is no shortcut, the experience can be a very meaningful and efficient experience as I mentioned above or it can be a painful experience involving thousands of dollars and even 10 to 20 years. It is really the decision of the trader and whether the trader is alone or learning with the help of an already profitable experienced companion.

My advice, have a plan and analyze things. If you make 100 trades and analyze non of them then it is like if you had made 0. Every time you make a trade go through its life and learn from it. The important thing is to learn from our mistakes, after all, in the words of Oscar Wilde, this is just the name we give to our experiences. If you are interested in algorithmic trading don't think that it will rid you of all emotion, on the contrary, automated trading is emotionally harder than manual trading and involves a different psychological approach. If you would like to learn more about this please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

My Experience Teaching the Trade... Some Initial Perceptions

A few weeks ago I wrote a post about how I would try to teach foreign exchange trading to some people who knew nothing about forex trading at all. I would start to teach trading to a biology student and an electronic engineer, some regular folks out there who of course, have the quality of having a stronger than average sense of mathematics and science, something which I believe to be of limited if of any advantage in forex trading. My objective with this post is to tell you how things are going and what I have found are the problems with these people, what their personalities are and what they have going on for and against them in the world of foreign exchange trading. I will then try to tell you what I have done to try to correct their psychological issues and the results I have observed.

First of all, let me start with my friend who majored in engineering. He is an intelligent person, most people would consider him well educated and smart. He in fact caught up with all the basics of forex trading pretty quickly, learned everything from left to right in just a few days. After he got the handle of the basics he started paper trading and doing things that I had not told him to do. You see, I have approached this teaching in a very relaxed fashion, I tell them exactly what they need to do but I never control what they do or tell them to do otherwise, I have just given some sets of instructions and then watched for the results. The fact is that he is a very anxious person and he cannot really handle excitement and frustration. After paper trading for a few days he told me that the market was a piece of cake and that he could be live trading within a month. Oh, if I had a nickel... A week after that he was already down to the last cent of his demo account we started to talk about all the things that had gone wrong and what his personality traits were doing for and against him.

Certainly he is just a perfect example of a very specific type of trader. He is the type of person who gets frustrated easily by loses and feels a rush when he wins so his emotions trade for him in a very specific fashion. When he loses he gets frustrated so he gets into the market again to make up for it, then if he loses again he gets again to get back at the market and the cycle goes on and on until he loses everything. If he wins then he gets back into the market to win more and more, until it changes to a losing phase and then he loses everything. He turned a 2000 USD demo account into a 10,000 USD account, then wiped it out in two days. He is a greedy trader, an over trader by nature, that will be his weak point when addressing forex trading.

The biology student is pretty different from this guy. He is not so competitive and much more prone to do things as I tell him to do them. He however has the problem of having a lack of dedication and enthusiasm and tends to procrastinate on the things he has to do. He wants to succeed but does not want to take the time to do things, he sometimes makes hasty decisions because he is lazy and does not care to do enough research. As a trader he is reluctant to take trades because of lack of knowledge and he exits trades very prematurely, he is definitely what one would consider a fear based trader, his personality makes him lose trades because of his inability to take actions based on his knowledge, this will be the point the market will exploit when he begins to trade a live accounts.

So are they hopeless ? Of course not, the way in which they handle trades right now is a reflection of their lack of knowledge. They trade like they do because they don't know what they are doing and their personalities are their current drive. Since one of them is very eager and spontaneous his personality drives him that way, since the other guy is lazy it drives him the other way. Both of them will lose all their money if they started to trade right now live. My hypothesis is that both of these behaviors are based in ignorance and of course I think that as we progress and they learn more they will become more confident in order to leave their emotions on the side. Can I turn an emotional wreckage into a profitable trader ? We will see if within the next 2 months my emotional trading techniques are able to help these new traders ! Stay tuned for more posts on these techniques.

If you would like to learn more about automated trading and how algorithmic trading can generate long term profitable results please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Can Anyone Trade the Forex Market ? We'll see !

Through the whole time I have traded the forex market and particularly more during this year I have been puzzled by the ever lasting question... Can anyone trade the forex market profitably ? Well, the answer seems to be no, but the opinion seems to be yes. Evidence suggests that the majority of retail traders lose their money. However for some reason people tend to believe that everyone can trade a forex account with a profit. Can this be done ? Can anyone trade the forex market profitably ?

Of course, I am not the first person to ask this question and this has already been answered by Richard Dennis, in the 70s when he traded his turtle traders to get massive amounts of money from the market. However, the turtle experiment has some very particular characteristics that make it hard to apply to the current situation in the foreign exchange market. For example, Richard Dennis gave his traders two million dollars to invest, they traded a rigid system with fixed rules and they traded futures and stocks, not forex.

So Richard Dennis did in fact show that "anyone" could make money in trading, that is, anyone who can follow a rigid set of instructions and execute them without judgment to obtain a given result. He in fact demonstrated the basic premise that allows automated trading systems to make money, the execution of a rigid given set of rules that take advantage of a market inefficiency will generate profit in the long run. However, my point goes a little bit deeper.

I want to know if anyone can make money in the market, understanding the market. Can anyone design a trading system to take advantage of inefficiencies in the foreign exchange market ? Can people with no trading in economics or finances make money trading ? Here is where my little experiment will start.

In order to know if people are able to make money trading with absolutely no knowledge whatsoever I have decided to start a small project that will have as an aim to achieve the sustained profitability of two trading accounts managed by two people who don't have the slightest idea about forex trading. In order to do this I have selected two friends, one of my best friends, who is an electronic engineer and a friend from my little sister who is currently studying for a major in biology. These two people are ideal for this study as they have had no contact with the financial markets and they lack any understanding of how macroeconomics or currency trading works.

My plan for them is actually a 4 month plan which will have a carefully developed agenda to "guarantee" their success in forex trading as much as I can. I will try to teach techniques based solely on price action so that they get a grip of the fundamental forces behind market movements. This is the outline of how they will trade :

• Month 1 : I will teach them the basics of the market (what a pip is, what a pair is, etc, all the basics). They will start a daily journal in which they will write their opinions about the EUR/USD each day. These opinions will be fairly simple and will only answer the question "do you think the pair will close tomorrow higher or lower than today, why ?"
• Month 2 : I will start to trade with them on a paper account. I will sit with them one hour each day and we will discuss the market and enter a trade randomly each day, they will decide the targets of the trade and apply money management techniques we learned in month one. We will also do extensive simulations in which we will execute the same technique.
  
• Month 3 : We will start to trade on a 200 USD real account. I will coach them during the trades but they will ultimately decide whether or not to enter trades, how much to trade and when to exit the trades.
• Month 4 : They will start live trading by themselves and we will see if they can apply all the knowledge they adquired during the first 3 months.
  

They will have to keep trading journals of all the trades and they will also have to reflect upon them and analyze what went wrong in each trade and what could have been done to better exit/manage the trade. My objective is to have them dedicate between one and two hours each day to currency trading and I believe that after these four months I may be able to get some interesting results.

Of course, chances are that after four months of riguruous trading they will still wipe their accounts but I want to do the experiment to learn as much as I can about beginner trader psycology and what the real mistakes new traders make are. More importanly, this will let me analyze exaclty what can be done to help new traders and what particular trading techniques work better for people who are just starting forex trading. Obviously this will also tell me how easy or hard it is for "anyone" to learn to trade the foreign exchange market. As they progress and I find out more about the trading learning process I will write more posts, new posts on this subject will be under the tag "ECT Proyect", ECT being short for "Everyone Can Trade".

When we arrive at the later stages of the proyect I will post their accounts via ftp so that you can all have an updated view on their account progress and the mistakes/successes they are getting. Of course, if you have liked this article and you would like to learn more about automated trading and how you can become profitable trading with expert advisors that have realistic profit and risk targets please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !