Mastering Corporate Finance

By the end of Mastering Corporate Finance Essentials by McCrary (2010), it was clear what the book offered: accounting practices for multimillion dollar investments, Black-Scholes, Monte Carlo, and NPV.  Those themes were present throughout the text.  The situations presented through the questions at the end of the chapter were alright.

For the purposes of action items, the book served to increase the vision of what comes with a large account to balance. It seemed written for people working on the accounting end of management for firms, corporations, etc.

With this book complete, I'm moving to another finance book, Corporate Finance by DeMarzo (2014). Just a scan of the chapters and I see similar themes for the last, so this should cement some ideas while introducing others. It's a longer read.

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In terms of trading, there has been a week of inaction, although some listening to traders has been happening. Moving into 2020, the plan is to work on the ideas I presented in the last post. Basically, trades being 1:2 risk:reward generally, and at least 1 trade a week.  Next year, the goal is to double my paper trading balance with the strategy.  Trading view is still new to me, and I expect to grow dramatically in my understanding of it.

There are tools available to speed up your reading, look into them.  My goal is >1500 words/minute.  Decrease subvocalization, regression, and fixation.  Jump around, split the page into threes, read a word per section, scan chapters, then subheadings, then skim on through.

Tu vois le nombre huit, I see an infinity.

Many hours have gone to other endeavors as of late including job related study, personal health and fitness, and research for a business start up.  There's been much development in those areas, in line with my 4:1, give to take ratio.  Still, a yearning for more moves in trade has been growing.  There have been 3 notable trades since my last post. Using the MT4 app, the Buy/Sell Stops have been implemented; +$157, and two -$80 results.  This morning, two more trades will be entered balancing the buy and sell stops.  Interesting results are expected.

A little math in the notebook:

365-52 = 313 forex days a year

risking 2% per trade and making 52 trades a year,

you need to make about 70% a trade to double your money (risk) in a year.

x = reward
y = risk

system of equations:
x/y = 1.7
x + y = 52

y =19, x = 33
So I need to have <33 52="" a="" days="" good="" of="" out="" p="" risk:reward.="" trade="" with="" year="">
If I started with $1000, risking .02(1000) = $20, I can double the $20 to $40 with 33 good trades of 1.7:1 risk out of 52.  This doesn't take into account how 2% changes with each trade, but it gives a good gauge of how quickly I can build a small account with that metric.  After a year, $1040.  That's actually a 4% annual return when risking 2% of the starting account.  Something to keep in mind going forward.  I need more than that.

Futures back to Forex, on to Finance

Getting Started in Futures by Lofton (2005) complete.  Less helpful in terms of immediate applicability in trades, more helpful in understanding how futures are similar to options, stock, and forex trading.  The tools are the same.  Lofton discussed how RSI, MACD, stochastics, EMAs, and volatility index are calculated. That's helpful to know where the technical indicators are coming from.  There are times in my own analysis where hand calculations seem appropriate.  Then, it's realized that the trend or range being calculated existed within an indicator available on MT5 or tradingview.com.   Studying and following commodities can be as intensive as studying currencies, and there is definite overlap, because it's all trade after all, and that's the purpose of the currency in the 1st place.

Moving forward.

The strategy is still under development on the new platform (tradingview).  For now, MT5 on the phone:

1. Risking 3% of $4746 ($142) in USDCHF for a buy, not considering market open/closing; simply getting back out there, ending this dry spell. 
2. A sell limit order on USDCHF. Hedging was explained in the last book too. Either the trade will be positive, or neutral because of the purposeful, opposing trades.
3. EURUSD, 10 pip SL, another 3%, buying at a 20pip TP
4. USDJPY, sell with SL:TP 10:20.

It's much harder to see this stuff just using the mobile app. As quickly as this was written, -$40 on the USDCHF trade because I fucked up the pips. Thankfully, it was a mistake <3 div="">

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The new book is Mastering Corporate Finance. It's a short one, <200 advantage="" all="" an="" and="" as="" be="" business="" can="" control="" could="" disadvantage="" div="" dvantages="" emotional="" exciting.="" expanding="" failure="" financial="" focus.="" forces="" forex="" from="" home="" human="" important="" in="" include:="" intensity="" interaction="" international="" invested="" it="" knowledge="" less="" maintain="" matters="" nbsp="" of="" on="" opportunities="" output="" own="" pages="" partners.="" perspective="" pick="" rests="" s="" seen="" shoulders="" success="" that="" the="" time="" to="" too.="" trading="" which="" working="" world="" your="">

It forces one to be ever watchful, awake, motivated, centered, thoughtful, grateful, loving, warm, curious, passionate, determined, flexible, confident, cheerful, energetic, and generous.  All are necessary for true success. Being spiritually centered is ever increasing in importance, revealing itself through my study and reflection on history.

Futures

More studying has been done this morning from the book Getting Started in Futures Trading.  Basically, commodities run the show. All other things are pretty similar in form to trading stocks, options, and foreign currencies.

Granted, there's a new set of rules, sizes, conversions, delivery dates, etc. Still, the math is simple once practiced, and the analysis goes back to fundamental and technical tools that occupy other areas of trading and investing.

Oil, coal, silver, gold, platinum, cocoa, soy beans; all make up the commodities that are watched closely. Some are seasonal, some year round.  The big take away is to see how these things affect the forex markets.  "How's this info going to make me money?" is always the question.

Patience is the name of the game.  More trades will be placed in the weeks to come utilizing limit and stop orders in the strategies mentioned weeks ago.  I've decided to use MT5 (app on phone) along with trading view (on the PC).  The latter is still new and more time needs to be dedicated to utilize the tools fully. There are a lot of pluses. The strength of technical indicators is a definite plus. There's much less math needed on the daily when one truly understands the indicators.  Confirmations can be amazing.  That's it for today.  We're back in full swing.

Hurdle #1

Alright, no biggie.  MT5 has been scraped for the foreseeable future.  My Parallel's software, from 2016, started to flake, giving me gray screens, and only outlines for the software.  Days later, no buttons were seen, and the Windows toolbars started disappearing as well. 

MT5 also runs very slow through Parallels on the Mac. FXChoice was the next up. It was used for a week before problems arose with the program opening.  Finally, I'm signed on to TradingView (in the last hour), which is used through the website.  For the time being, I will be getting acquainted with the platform before executing trades. Hopefully by the end of the week, trading strategies can be implemented. There are a few interesting setups that come to mind. 

Patience is key here. There's still plenty of reading to be done anyway. It takes much repetition to truly build successful habits, and if life allows me to see it through to fruition, the people nearest me will be those reaping the benefits, eating the fruit, and planting more seeds in the future.

Short entry today, though a lot has happened personally. Much good, the bad is simply put into perspective.  Laterz.

Never let your surroundings shrink you.

A great quote. The rest of it is, "... Always spit on the house."  This was a weaker trading weak.  Balance is $2648.78.  Trades were closed early before the TP was reached. Meanwhile, 2 more books and the MT5 tutorial completed: Visual Guide to Candlestick Charting (2012) and FOREX Trading Techniques (2003).  That's 36, but who's keeping count?

The easily grasped ideas included some of the major types of candlesticks including dojis, hammers, hanging man, the long bodies with little or no shadows (wicks), and many combinations of two or three candlesticks that act as signals for a change or continuation.  It's also important to see the patterns relative to other timeframes.  Candlestick charting confirmed some of the things taking shape during my own chart analysis.

This weekend's assignment is like unto last week's.  Trades will be planned out after analysis of this week's events.  Having a good understanding of how these currencies are moving is the goal.  With fundamentals being built into the MT5 platform, references will be paid to past events and notes for ones to come.

1) analyze the week's movements - candlesticks, chart timeframes, biggest movements (size and time of day), compare to previous week
2) note any fundamental movements
3) set up trades for the next week.

Work was back in gear this past week, hindering trading action. It was a nice break, a needed change after what... 2 months now?

The new book is Essentials of Foreign Exchange Trading (2009).  Time is also being spent studying different active traders online.  "A family that trades together, stays together."  Fibonacci seems more reasonable to utilize now, and there's much more interest in adding automation beyond SL and TP; i.e. automated entries and exits.  Trendlines, support and resistance levels, and technical indicators will be used this weekend, and we'll see what the profit looks like.

9/25 Profitable Trades This Week

That's 36%; a drop from last week.  Getting Started with Currency Trading was concluded along with the ebook,  Advanced Forex System.  From both, the importance of timing was mentioned, affecting the strategies utilized later this week. Balance is $2595.  Highest profit this week was $129, largest loss -$75.

Being on the west coast, GBPUSD and EURUSD (London) are +8 hrs away, USDJPY (Tokyo) is -9, and USDCHF (Switzerland) is +9, so adjustments must be made when looking at the charts.  On MT5, the charts show the time in the local currency country.  NY is +3 from here.  Later in the week, trades were entered at the beginning of the market day for different markets around the world. Wednesday night and all day Thursday was rough.  For London and Switzerland (GBP, EUR, and CHF), I entered trades around 2330. Granted that was a little late for Switzerland, but oh well.  For Japan (JPY),  it was 1600 when trades were made.  This worked for 2/4 trades, and there's more faith in this system currently than in the strategies attempted previously. Another interesting strategy will be attempted next week while still utilizing TrendRider and TrendBouncer strategies for confirmations.  It requires a little automation, so we'll see :)

Calculating trades in reverse will be used as an exercise this weekend, as the big spikes in the week are reviewed.  Studying makes automated trading seem like a reasonable goal when strategies can be implemented without needing the active trading component.  Work and sleep schedules were tampered with this week, and it was difficult indeed.

The next book is Forex Trading Techniques (2003).  It's a quick one, seems pretty basic so far.  This is book #34. I'm almost at my goal!  More goodness to come. Keep pushing.  Fight off mediocrity, know that a good plan for success includes how to handle failure.  Build that agility, that perseverance.  Imagine the most intimidating, fierce competitor to play the game.  Now, become them.

Alright, taking my advice, what's my next step again? Reversing trades? Yeah, that's actually a great exercise.  My ultimate competitor does all this stuff in his head, and doesn't need to write anything down (like the ol' school bookies Malcolm X spoke about in Alex Hailey's book.  They even had the character in Spike Lee's movie about him. Drugs destroyed him).  With that much being done mentally, the necessity for automation is changed, more programming is incorporated to automate intuition and establish protocols levels above personal ability.  Later.

Volatility in my currency pairs

Here are my trades this week.

In summary, out of 20 trades, 10 ended in profits.  The account balance is at $3064.  There was a net profit  for the week until trades were entered last night, and 2 out of 3 were stopped out!  Confidence from this week's success clouded my vision and arrogance stepped in.  From +$1 to -$83 or something. A few lessons this week...

It seems like when in a bullish or bearish trend at night, it only continues throughout the night, so trades should be entered early to expect rallies at the beginning of the day.

Nearly all the trades that were losses occurred when not actively engaged in the market, i.e. setting trades and heading into work.  Only twice was the TP met.  Instead of waiting for the TP, trades were closed when positive and a reversion was noted.  

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This week, a chart was developed listing the range of price movements within the currency pairs for different timeframes.  These numbers were eyeballed, rough estimates for my own use.  USDJPY was the least volatile of the bunch, and GBDUSD was the most active. No preference as of yet, because both extremes can be useful. This is shown below.  It's been utilized when setting positions.  

Examining the live feeds, the ranges help with establishing position sizes.  2% is still the norm for now.  At 60% success rate, the risk will be raised.  Another adjustment has been to decrease the pip spread and slide it in the direction expected.  For instance, if EURUSD is averaging 30 pips volatility in an 8 hour time frame, and a 60 pip drop is expected, the 30 pip risk may be decreased to 20 depending on confidence level.  Also, the pip spread is decreased just to decrease the risk:reward to more favorable numbers. 1:1.5 to 1:3 was used throughout the week, but the TP was rarely reached.  

Along with the volatility for position sizing, and multiple time frames, confirmation was looked for utilizing Bollinger Bands mostly.  More attention will be given next week to other strategies.

One note from Getting Started in Currency Trading is "When the entire market expects a move, the reverse must happen." It sounds good, but has yet to be proven through personal experience.  More reading to come before next week, and more of the same purposeful trading.  There must be more research into the different currencies as well.

Week's Trades Review

The snapshot speaks for itself.  Balance: $3147, profit for the week -$341.  Position size is pretty steady, unfortunately it's seen mostly on the losses.  2% was the magic number this week. Results of trades were 4:12 (wins:losses).  That's 33%, reaching the goal of >10% that was set for the week.

Funny thing is that only one of my TPs were reached.  All other trades were exited early when positive.  At least 4 other trades fluctuated high in the positive, but were held in hopes of hitting the TP.  It was sadness seeing the SL reached so many times more. The other problem was the risk reward set ups were always 1:1.5 and up, never settling for 1:1.

Next week, the goal is a higher frequency of positive trades, same position size set ups, and the willingness to jump out early when in the positive.  There were only about 1/4 of the trades that carried over longer than 12 hours.

Getting Started in Currency Trading (2008)

"You have to be so used to failure that you can fail 100 times before you succeed." Here are some notes from the book so far:

The more liquid a currency pair, the smaller the spread (bid/ask).

EURUSD 8pm to 12pm, less volatile, better entrance because you pay the spreads.  Rollover charges are from differences in currency interest rates.

Increasing interest rates negatively affect stock markets, people pull out of stocks, wearing currency.

Important interest rates to follow:

• Bank of England (BOE)
• US Federal Reserve (FED)
• European Central Bank (ECB)
• Bank of Japan (BOJ)

import > exports = trade deficit (-)  "Is deficit greater than market expectations?" If yes, it can cause negative price movement.

Purchasing Power Parity (PPP) - goods' price should equal in terms of exchange rate (arbitrage).  Study competitive markets and tradable goods (not things like real estate).

If i(US) = 3% and i(CAD) = 1%, USD depreciates against CAD; i.e. CAD/USD = 1.5 will drop.

Create and update calendar of economic indicators including CPI, PPI, and GDP.

There are leading and lagging indicators.  Leading change before the economy follows.  Lagging change after economy follows particular trend.

Econometric analysis quantifies qualitative fundamental factors into mathematical models.

RSI = (sum of price rises)/(sum of all price fluctuations) * 100%.  <25 oversold="">75 = overbought.  RSI covers around 25 days.

Use Momentum +RSI +MA +BB for entrance and exits.  

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Balance: $3234

The position I spoke of a day or so ago was kicked out (-$70) as the price did not break through the week's resistance level identified.  Lesson learned there.  One position still remains from yesterday. Bollinger Bands were used (Trend Bounce).  The standard deviations were adjusted to 1.8 last night. The expectation is to have a slightly early signal to follow.  

In MT5, text spoke of limit and stop orders. They are still a bit confusing.  Pending orders seem a useful feature to be incorporated soon.  

Looking for Entrances

It was a great day for trade set ups incorporating position sizes.   Here's a little info gathered today from the four currency pairs. For the week of 09Sep - 16Sep:

USDJPY - 106.895 to 107.812; up 88 pips

EURUSD - 1.10272 to 1.10732; up 46 pips

USDCHF - .98913 to .98831; down 8.2 pips

GBPUSD - 1.22767 to 1.247125; up 194.5 pips!

The information was easy to gather, and it helps to think about this info when entering a trade.  Support and Resistance, for the week at least, can provide some perspective on potential trades.  For instance, a position was just entered in GBPUSD and the TP is just above the week's resistance.  It will be interesting.  Technical analysis like that has to balance with fundamental analysis. What's going on with the British Pound? Trade in the country.  What country anyway, UK? Is this the impact of Brexit shit? That's a weak knowledge area as of now.

A good day of trading all together. 3 positions closed out, a positive net from yesterday.

Balance: $3447. Still looking to incorporate histograms for the 5th Element strategy.  More to come.

Study the Chart

Balance: $3508.

One trade still going on with EURUSD.  It's based off the Trend Bounce strategy.  Most trades thus far have only lasted a few hours. This one is pushing 24 at this point.  Nope, cancel that. As I speak, it just closed. Balance $3432. How about that for up to the minute?!

So, let's review this trade, what was my risk?

(3508 - 3432)/3508 = 76/3508 = 2.2%. That's correct. I only wanted to risk 2% of my account on the trade.  Onto the next.

Throughout today, time will be spent studying the last week of prices for the 4 currency pairs I'm following. The range of prices should be clear, making it easier to track what trends are developing.

The USD interest rates drop on Sep. 28.  That's it for today.  Time to look for an entry point.

Breaking out

Finishing up The Complete Guide to Option Spreads and Combinations, here are some take-a-ways: It's better to sell covered calls/puts than buy them because the pay offs are identical.  Calendar spreads can be combined; after the 1st option expires worthless (the goal) with unrealized profit, it adds with the later expiration option.  Adding in more options between expirations can create "super" spreads.

Long straddles - buy calls and puts, expect high volatility. unlimited profit.
Short straddles - sell calls and puts, expect little/no volatility.  defined max profit.

The graphs are clearer, and so do the questions.  What are average option prices? Which stocks have highest liquidity?  Keep it Simple Stupid!

Strangles are cheaper than straddles, more leverage, less likely to be very profitable.  Collars used in conjunction with positions in underlying stock. They look like vertical spreads.

The book is great and as advertised.  However, a limit has been established on technical jargon in this disciplinary road map.  It is roughly a two week maximum on books like these. The author gives few anecdotes, and the number crunching slows down the reading. More time was spent working on what was read, using examples. That's great if actual trades were going on, but that's not the next step just yet.  A lot was gained from that one.  Now, back to Forex.

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The book is, Getting Started in Currency Trading by Michael Archer. The first half of the book was a quick review of things learned from previous texts. Anecdotes jump out, and this is a refresher from the last text. The MT5 help topics are also still in the works.

Notes from this new book include: Current Price = (Ask + Bid)/2

Transaction Cost = Spread * Units Traded, charged for going in and coming out.

What are the interest rates for the top 4 currencies - JPY, GBD, USD, AUD... 

Balance: $3488

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The power of Vision is immense. Allowing myself to be sidetracked is less and less of an option each day.  Falling asleep in front of my text last night, motivational speeches were playing in the background. It was this fatigue with audio programming pushing my subconscious forward that propelled me during that situation.  Thankfully, it was happening in the midst of planning, preparation, etc.

More questions:

What does a professional trader look like?

• Tried and tested strategies
• Experience... 5+ years
• Disciplined lifestyle
• Purposeful actions
• Strong relationships with other traders
• Healthy routine
• Large bank account(s)
• Investments 

This is harder than I initially thought.  Let's take the other route. 

What does the unprofessional trader look like?

• Emotional - affected by daily losses because of a lack of confidence/understanding of strategies
• Less-disciplined - life not set up to provide profitable returns
• Doesn't research, tries to follow fads
• Less than 5 years experience
• Little network/support in trading community
• Small account (<$100,000) or in debt

This short list of ideas that just came to my head certainly lead me to conclude that time will tell if I can call myself professional at this.  It's a standard I have just set, and it's up to me to reach it.

The quality of questions are impactful to producing results.  The type of questions I ask myself will lead to the type of questions I ask others. It will also impact the quality of people encountered, the purpose of the encounter, and their results. That's enough today.  What am I cooking for dinner?

Watch the candlesticks

Bal: $3560.  Switched from 4% exposure to 2%, so the losses are less discouraging. This is 1st day having trouble placing the orders.  Requotes keep appearing; I mean at least 10 times total with two different currency pairs!

(3560)(.02)/(10)(8pips) = .89 for my lot size. S/L is at EMA 36.  This is USDCHF.

(3560)(.02)/(10*26) = .27 lots.  Again S/L at EMA 36. This is GBPUSD.  Largest pip spread to date.  It seems more probable to trade in the direction of the EMA 12 relative to EMA 36 even if the entry isn't given according to Trend Rider.

Meanwhile, motivation is important.  More time is continuously being spent on finances.  There are 14 expenses monthly that are all being accounted for.  With that, little seems left for investing. Staying mindful of that makes proper trades crucial.

Even now, more requotes, -$71 on last trade. Later, we'll try again. Back to it.

Nurturing the Vision

It is important at this point in development to be keenly aware of the world's influence.  Vision, rather than the world's pressure, should dictate my actions, thoughts, values, priorities, standards.  It gives direction to the leader, and empowers him beyond his capabilities. It gives direction.  It allows one to see not what is, but what can be.  VISION ATTRACTS RESOURCES.


In MT5, entrances are hard to come by for the Trend Bounce and Trend Rider Strategies.  The 5th Element strategy requires histograms. If unable to locate on the mobile app, the desktop version will be used to perform it.  More reading on vertical spreads to come.

MT5 Current Balance: $3697.

More on Vertical Spreads

Slower movement this week. MT5 balance is up to $3797, after 3 profitable trades in a row, 2 negative.  Indicators can be misleading. There is more to see in the progression of candlesticks for the H1 and H4 timeframes.  News updates on the mobile app were somewhat interesting this morning.

Vertical spreads can be confusing unless time is taken to patiently work through the numbers (later today during lunch).  The basic spreads are easy to understand as mentioned in the previous blog. The current subject is "moneyness" of the spread; when one leg is say in-the-money, and the other is at-the-money, the spread is in the money. Only by drawing this stuff out for every situation is it made clear.

Goals for the near future remain the same, with one addition:

1. Learn the 5 swing trading strategies
2. Achieve higher success rate by entering trades more wisely
3. Control position size with every trade
4. Memorize personal budget - number of items and avg. amounts

The last one has to do with preparation for next year. Currently, the budget is visited once a month, transferring bill statements to a spreadsheet, adding receipts and trashing 'em. Now, it's a priority to know inside and out, so that more can be invested on a daily basis.  Big goals require a lot of action. Memorization can eliminate potential headaches later.

Trente Jour recap

I've completed 30 blog entries today.  Since the inception, I've read 2 more books, so I'm still behind from my goal of 44 in a year, but I'll catch up soon.  I've lost more paper money this morning entering trades based on the two strategies Trend Bouncer (Bollinger Bands) and Trend Rider (EMA 12 and 36).  I did enter them with the correct sizes, .7 lots for a 20 pip S/L for example.  I have to review the rules for setting my S/Ls though.  I picked up another -$140 this morning.

I'm thinking of changing the pips based on resistance and support levels, but this will may be come after I pick up the next strategy, 5th element.  There's much to learn to get into this game. Still, I have made some great progress. I can definitely control my position size.  I understand 2 strategies, working on my 3rd, and I have probably around a 10% success rate.

Over the next month, I plan to increase my usable strategies as well as my trade success rate.  I'll continue entering them using swing strategies and hopefully incorporate all 5 by the end of the month. I WILL NOT increase the number of currency pairs I'm using. I WILL NOT go beyond the 5 strategies this month.  I WILL NOT study beyond options and forex for the time being, unless it's a more macroscopic subject.

I do want to continue inserting motivational tidbits, especially in those times I need them. Beyond that, I hope you, reader, are finding the passion and nurturing it.  Here's to 30 days! Happy Labor Day.

Vertical Spreads

You buy a call spread when you buy the lower strike call and sell the higher strike call. You sell a call spread when you sell the lower strike call and buy the higher strike call.

Looking at the graph of a long call, i believe lower strike calls are more expensive because they require less growth to be in the money.

Put spreads are the reverse in that you buy a put spread when you buy the higher strike put and sell the lower. The same goes with the sell.

“If you pay money for the spread, whether it’s a call spread or put spread, you’re buying the spread… if you receive money for the spread, whether it’s a call spread or a put spread, you’re selling the spread.”

"There’s a ceiling above which the value of a vertical spread cannot rise. That ceiling is the width of the spread or simply the upper strike price minus the lower strike price.”

I noticed the value of an option should be distinguished from our profit. For instance the value of a call option can increase, but my profit decreases if I’m selling it.

This next graph is from MT5 Help topics. The "Bull Call Spread" is the same as the graph below. I put them both to help the reader understand. I actually took the time to draw a buy and sell call on the same graph and add them to get the graph in Fig. 3.4 and the bull spread below. In both cases, the buy was more expensive, and the sell was really cheap, leaving a graph with smaller losses than profit potential.  I haven't gotten to the Backspread as seen in the graph.  May be tomorrow.

Back to les options

In the book, The Complete Guide to Option Spreads and Combinations, there's more of a discussion on delta - how much the option price will change with a change in the underlying stock.  Basically, the sensitivities of the option (time until expiration, volatility, current price, interest rate) are not exclusive, and determinations of one greek independent of the others can be misleading.

This helped me because it reinforces the importance of researching the stock.  "The change in option price that we'd expect to see given a 1 percent change (from say, 20% to 21%) in volatility is called vega... A decrease in volatility will decrease the price of both a put option and a call option; the option price will decrease by vega.

The next chapter is on Vertical Spreads and I'm excited about. It's all about the application! I've only just begun and already it's dispelled a myth I held. I thought "vertical" had to do with the graph of stock price (x-axis) vs. Profit/Loss (y-axis). Nope, it likely got its name because strike prices run vertically in most option listings, while the expirations run horizontally (so calendar spreads are often called "horizontal" spreads).

I really want to jump deeper into this chapter early in the morning when the family's asleep.  Until then, some words of encouragement:

Maintain your discipline. A particular disposition is necessary to think critically. Be patient and empathetic. Oh, the 10 emotions of power:

1. Love and Warmth
2. Gratefulness and Appreciation
3. Curiosity
4. Passion
5. Determination
6. Flexibility
7. Confidence
8. Cheerfulness
9. Vitality
10. Generosity

Success in trading depends on the soundness of your thinking.

The Mathematics

I got to spend the day studying my past trades. Here's what they look like. I'll break this thing down nice and slow, because I learned a lot. 1st off, notice all the negatives in the Profit column? Yeah, it's been rough.

• Next thing to notice is the Type column. I've been pretty even with my buys and sells.  
• Alright, next is the Volume column.  I was really random.  When I lost or gained a lot, I would drop down, up, and all around, so there's no rhyme or reason to the volumes, but they came in handy when I was doing the math.
• Next are the stop loss (S/L) and target profit (T/P) columns.  Most of my trades were automatically executed at the S/L (negative profits) and T/P (positive profits).  You can see this in the far right Price column - the closing price - as it matches the respective S/L for negative profits and T/P for positive returns.
• Take the 2nd trade down: .07 lots of the USDCHF pair sold at .97933.  The position is closed at .97963.  This matches with the S/L price.  It's pretty consistent all the way down the list, unless it's a trade with nothing in the S/L and T/P columns because I didn't even want to take the time to figure it out. (never again).

Les équations

The fun stuff. Ok, skipping all the trouble getting here, I give the conclusions.  Let's calculate the profit for a few of these.  In particular, I'll do one for each currency pair I'm working with. 

Note: 1E5 = 1*10⁵= 100,000, 4E-4 = 4*10^(-4) = .0004, etc.

Second Trade: Sell .07 lots of USDCHF at .97933.

profit = [(lot size)*(1E5)*(start price - close price)]/(close price)
= [(.07)(1E5)(.97933-.97963)]/.97963
= [(7000)(-.00030)]/.97963 = -$2.14 

 Notice that it's (start price - close price). This is because we're selling.  Buying, it's reversed to (close price - start price).  I'm not going into how I got this formula finally, but it makes sense when you try to figure it out for yourself. 

 Also note that we had to divide by the closing price. That's because USD is not the base currency position, CHF is. You'll see the same thing in this next trade. 

 .00030 is how many pips I wanted to risk (3 pips).  The risk reward should be 1:2 or 1:3 meaning S/L:T/P pip spreads of 3:6 or 3:9 for example.  I didn't strictly follow this, but I will.

Fourth Trade: Sell .4 lots of USDJPY at 106.557.

profit = [(lot size)(1E5)(start price - close price)]/(close price)
= [(.4)(1E5)(106.554-106.574)]/106.574
= (4E4)(-2E-2)/106.574 = -$7.51

• Note that JPY pips are .01, while all others are .0001, so this trade was "down 2 pips"

Seventh Trade: Buy 1.00 lot of GBPUSD at 1.22583.

profit = (lot size)(1E5)(close price - start price)
= (1E5)(1.22812-1.22583)
= (1E5)(22.9E-4)= $229

• Note that we didn't have to divide by anything because the base currency is USD.
• That was a 22.9 pip spread. 1 pip is $10, hence $229. Making sense? I'm feeling it.  Alright last one...

Twelfth trade down: Buy 1.0 lot of EURUSD at 1.10928.

profit = (lot size)(1E5)(close price - start price) 

= (1E5)(1.10750 - 1.10928)

= (1E5)(-17.8E-4) = -$178.00

Important Note: There were no commission or swaps (time sensitive fees) using this broker. Most have fees associated with the bid/ask spread as well as how long you hold the position. I'm not looking forward to that part either.

Sizing it Up

After doing the exercises through all the trades, I was able to work backwards and put more together. Here's the end result.  First, you find the S/L and T/P, then you can calculate the lot size.  Here's an example using my current paper money portfolio.  

Balance: $3500

Leverage: 1:200

I want to expose about 40% of my account at a max.  That's .4(3500) = 1400.  My 1:200 leverage means 1 lot is covered with 100,000/200 = 500.  So, I can have 1400/500 = 2.8 lots in total trades at once.

That's something I can look at and add up really quick, and that deals with not getting into trouble with my margin. For position sizing, let's say I only want to risk 4% of my account in each trade.  Well, that's .04(3500) = 140.

Working backwards from all those exercises, 140 takes the place of my profit (really it's the S/L), and I'm solving for lot size using the same equation!  When looking at graphs, I've been setting my stop loss based on indicators.  For instance, if the EMA 36 is 20 pips underneath EMA 12, that's what my stop loss is.  So, we get the pips, then use:

lot size = profit/(1E5)(pipsE-4)

=140/(1E5)(pipsE-4)

=140/[(10)(pips)]

=14/pips

Note: For XXXJPY trades, (pipsE-4) changes to (pipsE-2).

This is easy enough for me to change whenever my account balance changes.  140 = (risk percentage)(account balance).  I'm hoping typing all this out helps me remember it.  I'll probably hold off until next week and open some positions when I see an entrance.

Tomorrow, I'm back onto options.

Les Opérations sur Options

I got a little deeper today. In the book I'm reading, The Complete Guide to Options Spreads and Combinations, I took my time on just 3 pages explaining calls and puts. I realized that this foundation was important, so I rewrote a few things and I was able to understand the conclusions drawn.  For the blog, I'll only write what I truly understand. As with everything I post, I encourage the reader to dig deep too.

Calls - at expiration, stocks are bought
Puts - at expirations, stocks are sold (you better own 'em)

In/at/out-of-money pertains to profit/loss (P/L) at that moment, specifically when buying calls or puts. So for calls:

• In-the-money: strike price < stock price 
•  At-the-money: strike price ~ stock price 
•  Out-of-the-money: strike > stock

I'll put up charts later.  Selling calls or puts are done to hedge against positions.

A spread is when you buy one option and sell another.

• When the two options differ in strike price, it's a vertical spread
• differing in expiration date is a calendar spread
• Combining the two, it's a diagonal spread

An option combination is owning underlying stock and options, i.e. selling a call against underlying is a covered call.  Buying both an at-the-money call and put is a straddle.

********************************************

 In forex, I was stopped out again using the Trend Rider strategy.  Now, I'm in a USDCHF (US dollar and Swiss Franc) trade, and I've watched it go up to $150, but not my target profit, so I let it sit... Now, it's -$10.  I hear "let your winners ride," and "take the small wins," simultaneously, but I'm training myself to be disciplined in my trades.  If I'm stopped out of this one, on to the next.

Tomorrow, I plan on breaking down my trading history so far as well as pick up a little more on the options side of things.  

Daily Trends

I was stopped out of another trade, this time $178.  While viewing MT5, looking for an entry point, I noticed a daily rise and fall of the EURUSD pair.  I'm going to try to capitalize on it tomorrow. Today I entered another trade on the GPDUSD. It looks like I bought instead of sold, however.  I don't know how I made that mistake, but I'm definitely learning a lot about what not to do.

I haven't gotten much studying done today, but I am viewing the charts even as I type this.  Family has been consuming, and I'm thankful for that. When you have time to make moves in any area, get it while the getting is good.  That's all I have for now, utilizing Trend Rider and Trend Bouncer swing strategies. I have to get off this negative streak.  Oh no, it's at -$177 right now, getting close to my SL!

Petit Entry

Yesterday was the most uneventful trading day as of yet.  I was only able to access my trades through my mobile app. After spending a few hours on the desktop platform, the mobile app is obviously more limiting. Here are some differences to note:

• For each time I set a chart, the settings are used on every currency pair. It remains until I change it. That translates to one strategy approach for all currency pairs.  Then, I have to change the indicators before using another strategy.
• No Help topics, so I can't study the platform on the go.  There is a news section, but it's been empty every time I've checked it.
• I can not modify my SL and TP after entering a trade.

Alright, that's actually not so bad.  On the RobinHood front, there's been a little positive movement on my holdings, and I'll continue studying options later today.

I found it difficult to be outside of trades yesterday, I wanted to enter although there were no good signals for neither Trend Rider nor Trend Bouncer.  Discipline can be difficult. It's a good thing.

Option Call and Trade Recap

I'm currently reading  The Complete Book of Option Spreads and Combinations by Scott Nations (2014). Taking my sweet time, here's what I took so far.

Options increment based on the value of the underlying stock.

• <$50 move in $1 increments
• less traded options at $2.50
• >$100 move in $5
• options exchanges can alter them though, subject to market demand for strike prices.

Example: "SPY June 150 put" mean S&P 500 ETF, expires 3rd Friday in June, strike price of $150.  Buyer of this put has option to sell 100 shares at $150 at expiration. If price of option is $1.35, "outlay" is $1.35*100 = $135 ignoring commissions.

• Buying a call and holding it (going long), if the price drops, you lose the premium.
• The price at expiration + premium = breaking even. More rallying is profit.
• If you sell a call, max profit is the premium.  If price goes up beyond the strike, profit decreases. >strike + cost of option is unlimited loss.
• Buying or selling a call, you start above the current market price
• Buy and hold increases profit as price increases.
• Selling a call, you expect price to stay or decrease to get profit.

This wasn't my 1st time reading this stuff, but it is the 1st time I can say I understand it.  Oh, he also discussed how the bid/ask price can be different from the strike price and that difference is described as the spread.

**********************************************************

So, my trades with USDCHF of .4 lots each were both stopped out.  Now, I must confess that I wasn't going exactly by the trading strategy, and I understand that now.  Instead of entering when the price came down and touched the EMA 12, I entered with it further away. I learned my lesson.  So my losses totaled $-704.  Next trade will be a smaller percentage, and entered correctly.

Trading for currency pairs, I don't see an entrance open for Trend Rider, so now's a good time to study my 2nd strategy, Trend Bouncer. This one uses Bollinger Bands. That's all I know right now. I'll study it more with this evening, and try it out tomorrow if I can.

MT5 Option Strategies

Coming from the MT5 help menu, retyping relevant definitions is the goal of this entry.  By the way, I was able to exit my position with $229 profit. It was just a little above my TP.   Market opened at 0000 Sunday night, not Monday morning. Noted.  To recap on the trade:

Buy: 1.00 lot, GBPUSD at 1.22583 => $100,000 at 1:200 leverage.  100,000/200 = $500
Sold: at 1.22812

1.22812 - 1.22583 =.00229

So, it looks like it was just the standard lot price times the price difference; $100,000(.00229) = $229.  I had less than $5000 in my account at the time.  So, buying one lot was like risking 10% of my account (500/5000 = .1). Now, that was my plan, but I wasn't confident I was actually doing that.  I ended up earning nearly 5% on that trade.  Going forward, have to be more aware of the risk.

I entered another position (two actually) of USDCHF - US Dollar vs. Swiss Franc - for a volume of .40 lots each; a sell at .97223 and another at .97225. I meant to modify the one, but it turned into two.  Stop losses are both at .97842. This is called 619 points, which threw me off. It's 62 pips. T/P is approximately the same distance away, so they're both 1:1 risk to reward trades.  Note: When you modify, you can only modify the S/L and TP, the lot size is kept the same.

$80,000/200 = $400. That should be how much I'm betting on this trade; .8 lots = $80,000.  Sure enough, as I look in the trading window, it says Margin: 400.00.  That means that 400/5000 = 8% capital on this trade. The 62 pips to the SL and TP becomes .0062 (80,000) = $496. So, really, I'm risking another 10% in both directions. Alright, as I type, I moved the SL's down to .97664 to decrease my exposure.  That's .97223 - .97664 = -441.  So my risk reward is a little better; 44:62 is like 1:1.4.  Alright, enough tampering. By the way, this trade was entered using the Trend Rider strategy.  After these adjustments, I moved the SL between EMA 36 and EMA 12, when the SL should actually be on it. Here's a picture.

Copyright MetaQuotes 2019

Option Strategies

• Volatility chart - typically, lowest values are found near the strike price, which are very close to the current market value of the underlying asset.  The further the strike price is from the current market, the greater future price change is expected by traders.  The chart form resembles an arc is called "Volatility Smile".
• Gamma shows how Delta changes when the underlying asset price changes; 2nd derivative of the option price.  if Gamma = .01, and Delta = .05, then an increase of the underlying asset by 2  units will lead Delta to increase by .01*2 = .02, so it becomes .05 + .02 = .07.  Great explanation.
• Vega shows how an option value changes with the change of implied volatility. It is calculated as the ratio of a change in the option price to a change in the implied volatility.  If Vega is 10, then 1% volatility growth leads to 10-unit growth in the option price; volatility:option$ = 1:10.

The Help menu mentions the feature of creating a custom strategy. That's a goal when I'm versed in the basics.  Just like chess, I have the most fun utilizing my own strategy.  Typically, it's just based on other strategies with 10% or so of my own fixings.  Some games I'm more ambitious. Failure can easily bring me back to a comfort zone, and these basic strategies should provide that for me later.

For the sake of time (I have to give the kids a bath), I'll introduce the strategies section.  The built-in strategies are broken down 1st into bullish, bearish, sideways, and regardless of trend.  2ndly, they're divided into:

• Volatility up - Used when a growth of the underlying asset volatility (UAV) is expected.
• Volatility down - Used when a fall in UAV is expected.
• Regardless of volatility - Self-explanatory. 
• Limited Loss - involves limiting of possible losses.
• Unlimited Loss - the loss is not limited in case of unfavorable outcome (what? why?!)

All built-in strategies assume the purchase and sale of options with the same expiration date.  Are you excited?! I am. At first, I felt information overload. Thankfully, I've received reassurance via motivational speakers and podcasts.

A great metaphor is seeing trading like driving a car.  The vehicle is the market, its tools, trading strategies, etc.  Like a car, it is very complicated. The brake assembly, the chassis, the electronics, the wiring, the combustion engine, the frame, hydraulics, and the list goes on.  Approach trading like driving a car.

You know where this is going.  You don't need to know everything about a car to drive it, and indeed most people don't.  Steering wheel, gas pedal, mirrors, gears, good to go. Instead of attempting to learn everything about trading, figure out what's important to get behind the wheel and on the road.  Most people don't learn how to change a flat until they have one.  Beyond that, they can still be great drivers.

The goal is to get from point A to point B.  In the case of trading, the goal is to make money.  Everything should be with that objective. When I go negative, I'll learn more to avoid that.  At this point, I've cranked the car, and I'm learning how to drive in a parking lot before I get out on the road, but Lord knows I'm excited to get out there.

Leaders are Readers.

MT5 Trading Operations

1st off, I checked my position with GBPUSD and I'm up $224, past my TP by 28 pips (TP - 1.2259, it's at 1.2287).  I got no alerts or anything. I'm thinking the autotrading tool was off. Closing 1st thing Monday morning (0000).  Anyway, today I'm in the help topics, learning about Trading Operations on the MetaTrader 5 platform.

This trading game is like chess to me. I enjoy it most when I'm playing the game, not reading about it.  And the more L's I take, the more determined I get to win. I can see myself using the buy limit and sell limits based on market conditions. Of course, I want to use the buy stop-limit and sell stop-limits, that'll come soon.

There's a Depth of Market window that shows more detailed analysis of the current market conditions. It may come in handy in other trading strategies. For now, my analysis is based on indicators.

I see how the "one click" trading would be helpful for day traders. For me, with my strategies, I use the Toolbox, Trade tab because I can set the SL and TP from there.

For today I stopped with the section on the Options Board. This section details strategies, templates, and analysis tools. I'm not sure if it's available to me, but the information is great.  I'll continue reading tomorrow and prepare for trading monday morning.

The Complete Book of Option Spreads and Combinations

This is the new book I've started today. Nothing new to report. My trade is still holding. I modified my forex position by raising the stop loss.  In options, I'm determined to understand how to enter into these spreads and know my risk.  That's it for today.

I need strategies

I finished the Visual Guide to Options Trading. Turns out, it has more to do with visuals within Bloomberg software. The language was dense, and there was little gained. It's more advanced than I expected. It speaks on the basics, but the language is dry.

Comparisons were made between options trading and advanced system in a fighter jet. Funny, considering my day job on F-18s. I was reminded about in-the-money, at-the-money, and out-of-the money options.  Also, delta, gamma, Vega, and rho.  So, I skimmed forward to get into the strategies, but again, the language couldn't keep me.  I need more example trades, especially within the platform I'll be using, RobinHood.

So, that's my conclusion as I look to another reference, learning how to enter straddles, strangles, spreads, condors, butterflies, etc.  I saw more diagrams of them, so that was a refresher as well.  Once I get the strategies, all my time can be spent on research.

Within MT5, I have an open position with 100 S/L and 200 TP.  Pips that is.  I'm seeing the candlesticks a little clear. Watching the closing prices change in real time was interesting. Until tomorrow.

MT5

I was able to set up my stop loss (S/L) and target price (TP) on my desktop version. I actually have MetaTrader 5, not 4 as I'd thought. So I downloaded MT5 for my android as well. Starting with the desktop version, I set up another demo account with $5000 and 1:200 leverage. It was easy to then sync accounts and get alerts for when trades were executed or stops/targets reached onto my android phone.

I finished the MT4 book, realizing that some things are a little different on the more recent, MT5 version.  I also started another book, Visual Guide to Options, by Jared Levy (2013).  Meanwhile, I'll be studying MT5 using the Help menu, which is quite comprehensive. I just finished the first 2 of 11 tabs in the "Trading Platform: User Manual" in the Help menu, which is a book worth of info in itself.

Tonight or tomorrow morning, I'll be opening another position.  The last one I did reached it's stop loss and I earned -$4.75 or something like that. I was trying to risk 4%, and thankfully I under-calculated.  I'm still working on understanding pips and calculating my position size correctly.  Forget your losses, work the strategy consistently, make adjustments after reviewing a few months of trade data.

Options (as of 2013)

8 exchanges currently trading options:

1. AMEX - American Stock Exchange
2. BOX - Boston Stock Exchange
3. CBOE - Chicago Board of Options Exchange
4. ISE - International Stock Exchange
5. BATS - BATS Exchange, electronic communication network (ECN)
6. PCST - Pacific Coast Stock Exchange
7. PHLX - Philadelphia Stock Exchange
8. NASDAQ - Nasdaq Options

Brokers can route orders to cheapest exchange, or the exchange will match the lowest prices.

Avoid stocks less than or equal to $50, Volume or 750,000, and spread greater than $1.

Option prices comes from:

1. Stock Price
2. Strike Price
3. Interest rate
4. Dividend
5. Implied Volatility

Average options spread is $.10. High volume, low volatility, low price = tight spread. Low volume, high volatility, high price = wide spread.

"Mark" is the midpoint between bid and ask prices.

I'm still on the basics with options, looking for ways to immediately apply information to a trade. Still, there are fundamentals I have to get a handle on, so that's where I am. Laterz.

MT4 Position Sizing

I made a mistake and deleted my demo accounts on my phone, but it works out. Now, I can sync my desktop account with my phone, and set up alerts for potential entries and exits.

I have figured out few things today to help going forward.  For one, I began my last trade incorrectly in regards to the Trend Rider set up.

1. Watch for the EMA 12 to cross EMA 36 - cross above for potential long, below for short.
2. Wait for price movement to come down (or up respectively) and touch EMA 12. That's the entry point.
3. Set stop loss (S/L) at EMA 36.
4. Set profit target at twice to three times the stop loss above (or below) the entry point.
5. Exit when ADX 14 goes above and comes back down to 40.

The thing about this set up is that it neglects to mention the position size. That's where my studying comes in.  I spent a lot of time this morning before work as well as my lunch break, looking into percentage in points (pips) and position sizing.  A good youtube video that helped a little by Karen Foo really got me to start playing with some numbers.  There's even a mathematical mistake in the video, can you catch it?  I also read some articles online about it too. I'll try to reiterate it below for my readers, and also for myself.

Alright, let's take the currency pair, EUR/JPY (Euro and Japanese Yen) as an example.  The second currency, or counter currency is the one that sets the pip value.   Let's say the EUP/JPY exchange rate is 117.964.  That means 117.964 Yen for one Euro.  

My account's in USD though. So we use the USDJPY exchange rate. Let's say it's 106.278.  That's 106.278 Yen for 1 USD.  We're almost at position size. 

---------------------------------

Now, back to the Trend Rider. Let's say the 117.964 was my entry point and the EMA 36 is 30 pips below.  Since we're talking pips in Yen, that's 

(.01/pip)*(30 pips) = .3

30 pips below would be 117.964 - .3 = 117.664 = S/L

My target price (TP) would be 2(.3) = .6 above the entry price (60 pips... that's aggressive sounds to me).

117.964 + .6 = 118.564 = TP

-----------------------------------

I got that part pretty well, now comes the position size.  So let's say I have $5000 in my account. I only want to risk 4% on this trade.

.04(5000) = $200.   In Yen,

 

200 USD*(106.278 Yen/USD)= 21,256 Yen.

21,256/30 pips = 708.52 yen/pip

(708.52 yen/pip)*(10 usd/106.278 eny)*10 = number of units = 667 = .007 lots = 7 nanolots of volume.  That should be the volume I enter into MT4.

It took me an hour to get that. I hope it's right. This is a confusing topic right now, despite reading and listening from 4 or more sources at this point.

Value/(lot*pip) 

More of this to come.

Next up is understanding how leverage/margin comes into the picture because my calculations didn't include any so far.

MT4 Charting Tools

In the MT4 User Manual, I covered the Chart tools yesterday.  Things I'll be using very soon include:

• Template - Save time settings and indicators

• Chart Shift - puts latest price moves in the center of the chart
• Standard deviation lines - place line and double-click to set the number of deviations
• Fibonacci lines as support/resistance
• Comments placed for announcements.
• Profiles menu is in File menu to save groups of charts
• Parameters tab - most specific data of indicators

**************************************************************

That was it for the reading. Onto my 1st trade using Trend Bouncer.  I entered into USDJPY, 

• Leverage is 1:200 using WSI Technology Ltd. as a broker.
• Opened buying 1.00 at the ask price of 106.466 
• the EMA 12 having already crossed abode EMA 36.
• The ADX 14 indicator never reached 40.
• I closed just a minute ago at 160.327. That was a spread of 139 pips.
• EMA 12 was still above 36.  I could have waited for ADX 14 to rise to 40, but I had no stop loss set.
• Profit: -130.73
• Swap -20.83
• Commission: -35

I'm sitting here with a calculator trying to figure out how to generate all these numbers beyond the price move, and it's a little tricky. Tomorrow's trade, I'm using MetaQuotes as a broker because I don't have to worry about swaps or commissions in the calculators.  Yes, I have two demo accounts open right now.

On the charts, I've also zoomed in a lot to view the candlesticks over the last day. The other thing I need to do is set position size. I'll be extra aggressive for training purposes at 10%:

Balance: $4879.59

.1(4879.59) = $488

The leverage in this account is 1:50. So, 1 lot = 100,000 / 50 = 2,000.

Rounding 488 up to 500, 500/2000 = .25. I can purchase up to .25 lots.  I think that math's right.  Well, that doesn't include the spread, which is really my risk.  Still, I'm stopping here and I'm just going to open a trade for tomorrow with volume .25 and see what it looks like.

Prep for the week

Alright, quick post. I know I won't be able to use the desktop app very much right now, so most of my work will be on my mobile app. I've limited myself to 4 currency pairs:

XAGUSD - Silver 1 Lot = 5000 Ounces, Chicago Mercantile Exchange (CME), USD
USDJPY - US dollar/ Japanese Yen
EURUSD - Euro / US Dollar
USDCHF - US dollar/ Swiss franc

Within each one, I've made sure that the charts are set to H1 or H4.  That's about it for today. I still have two positions open, XAGUSD and USDCHF, both positive right now, and I will hopefully close them positively tomorrow once the market opens.

I'm excited about using the strategies. It's the start of something beautiful and exciting, and I'm done talking. I'm ready to play. À demain.

Feels like the 1st Time - MT4 User Manual

Section 1: Opening MetaTrader for the 1st Time

• A lot customization tools I won’t be using to start off
• Market Window is the main one
• Navigation Bar has most common tabs - Accounts, Indicators (over 100), Expert Advisors, and Scripts
• Account History, like the cell app, provides all trades in the last 30 days
• You can “Save as a detailed report” and export it as an Excel file (.xls). I’ll do this for the blog at some point.

Section 2: Opening and Managing Your Trades

• Spillage is addressed  with Market Orders because of closest market price, connectivity, processing, etc.
• 4 types of Pending Orders:
• Buy Limit - Order to buy (ask price) at a strike price below the current market price (MP)
• Sell Limit - Order to sell (bid price) at a price above the MP
• Buy Stop - Order to buy (ask price) at a strike price above MP
• Sell Stop - Order to sell (bid price) at a price below the current MP
• Trailing Stop (TS) orders will run as long as you’re logged into platform. If you leave before market moves in your favor,  TP won’t be placed. If it starts running, it won’t trail if you log out. This doesn’t align with any of my strategies so far, still very important.
• View Contract Specs before entering trade - Right click in Market Watch Window, Select Symbols, which instrument, and Properties

• In MT, 1.0 = 100,000 units and .1 = 10,000 unit

• Use Trade Tab in Terminal window to manage open and pending orders
• Right click in there to add trailing stops quickly (at least 15 pips)
• You can use the Multiple Close By menu option to close opposing positions
• You can modify pending orders too.
• Set alerts in the Alert Editor tap of Terminal window

That's a good start. This is a lot of information without application, so I'll be working on setting a trade next, using one of the strategies from my last post.

Mes Cinq Stratégies

Before getting to my five strategies, I'll hit the most interesting points I gained from the rest of the book, 17 Proven Strategies... I finished tonight.

Fundamental analysis - important news / interest rates
Technical analysis - charts and indicators.

The book provides strategies for day traders, swing traders, position traders, and mechanical traders. I'm only talking about the ones I'll be doing as a swing trader (1 day to a week long positions).

Important news and things to notice

When (1) interest rates go up, (2) the GDP goes up, (3) NFP (released 1st Friday of each month) goes up, all can cause a currency to strengthen. (4) Trade Balance Figures (imports/exports) effect the currency strengths. (5) Consumer Price Index (CPI) goes up = interest rates go up. Finally, (6) Purchasing Manufacturing Index (PMI) can provide info on currency pairs.  

All of that was great to know, but I need to know when these reports are released and where to get them.  Trading has to happen minutes to hours after the release of the info to take advantage.

Rule of 20: "If actual exceeds forecast by 20%, trade in that direction." That's with all numerical predictions except PMI (use .5%, and .2% for interest rates).  Fyi, .01% = 1 basis point.

Trading Strategies

Disclaimer: I've read plenty of strategies up until this point. I'm picking the ones from this book because it's time to practice. If I read of others later on, I'll adjust accordingly. THIS IS IT for the next few months.

Gawk the Hawk - M15/M30 charts. Go long or short immediately after news release.  Prepare beforehand.  After entry, set 20 pip stop loss. Set targets at 40 or 60 pips above. That's risk:reward of 1:2 and 1:3.  This is actually a Day Trade strategy I like. I'm writing it here just to remember it later.

1. Trend Rider - H1/H4 charts. Indicators: 

• Exponential Moving Average (EMA) with period 12 [EMA 12]
•  EMA 36
• Average directional movement index (ADX 14)

Going Long: Once EMA 12 crosses above EMA 36, enter when price comes back down to EMA 12. Set stop at EMA 36 (>30 pips).  Exit when ADX 14 goes above 40 and hits it again. No predetermined profit.  The same goes for going Short, mirroring EMA 36 and EMA 12.

2. Trend Bouncer - H1/H4 charts. Use Bollinger Bands MA 12, 2 standard deviations. Once price touches the band and retraces, enter.  Stop loss is the other band.  1:2, 1:3. Easy day, right?

3. 5th Element - H1/H4 charts. Fast EMA: 12, Slow EMA: 26, MACD SMA: 9. Apply to close. Wait for 5 positive bars on MT4 histogram (MACD minus 9-day SMA of MACD) to indicate upward trend, 5 negative for short. Set stop loss at last histogram low. 1:2, 1:3

4. Power Ranger - Using oscillators RSI and Stochastics.  >80 overbought (sell), <20 1:1="" 1:2.="" 1st="" 20="" 75="" a="" and="" as="" at="" be="" below="" buy="" cross.="" crosses.="" draw="" enter="" erforming="" et="" for="" from="" go="" i="" irror="" is="" it="" lines="" long="" look="" loss="" m="" mirrored.="" must="" nbsp="" of="" or="" oversold="" p="" price="" profit="" range="" resistance="" s="" set="" short="" shorthand.="" shorting.="" somewhat="" speaking="" stop="" support.="" support="" target="" the="" then="" they="" to="" trade="" uptrend="" when="">

5. Pendulum - In ranges, trade at 10% and 90% of range from support to resistance with profit targets at 50%. Look for retracements. If range is x pips, buy at .1x above support, sell at .1x below resistance. Profit 1 is 50%, profit 2 is 90%.

So that's it. They will all require some practice and familiarity with MT4. I was excited to hear the author speak about doing all this on MT4, securing my resolve to learn these strategies.

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Interest earned or owed on currencies during open positions are called swaps. Positions held after 5pm (EST) are rolled over, subject to swaps.

Forex books 3 days of swaps Wednesday night, so think twice of holding that night.

When oil prices are up, go long on CAD/JPY.  When China GDP goes up, AUD goes up (weeks to months later).

"If I can't, I must. If I must, I can."

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Lastly, I started a new book, the MetaQuotes User Manual that is.  It's going through the entire platform from toolbars to charts, managing orders, setting up stops, expert advisors (automated trading), and a lot more. As I learn the strategies, I'll be working more on the desktop application as time permits. Exciting times.

I still have to get better at calculating position size. This post is almost an hour late. I'm going to bed.

Forex Players and New Trade

Notes from 17 Proven Strategies...:

When interest rates go up (from central banks), inflation goes down, which strengthens a currency. When interest rates go down, it weakens a currency (sell).

Banks buy and sell trillions of dollars, or other foreign currency to maintain stability within their economies.

Reserve Requirement Ratio (RRR) is liquid currency to pay for mass withdrawals, held within central banks.

Deutsche Bank (a commercial bank), is the world's largest forex trading bank.  Commercial banks are profit driven (big surprise there, who isn't?).

Proprietary desks (prop desks) exist within commercial and investment banks just like in stock market trading firms. They are profit driven and poorly regulated it seems.

Companies that do a lot of exporting hedge their risk using the forex market.  When the value of the currency in an exporting country changes, contracts can take on fluctuating values.  Therefore, companies go long to lock in profits.  That was pretty cool to read about.

24hrs/5 days a wk, forex market open, not 24/7 like I said in a previous post. Here are forex times:

Most liquidity exists when markets are open. 3 factors affect the price of commodities:

1. Supply and Demand

2.Value of USD

3. Speculation on futures market

When USD goes down, commodities go up.  

"When you fail to plan, you plan to fail."

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Next chapter was on trading styles and strategies. Based on a quiz in the book, I'm more of a swing trader or position trader.  Typically, swing traders risk 50 - 150 pips per trade. An example holds a  50 pip stop and 150 profit target.  This is a risk reward of 1:2 to 1:3 and up.  Swing traders look at H1 and H4 charts (1 hour and 4 hour charts), and the trades last 1-7 days.

I wouldn't mind being a "mechanical" trader, which is basically one who automates everything.

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How does this help me make money?

I felt energized after this day's studying.  All the info leads me into understanding what to watch in the news when implementing strategies. For example, I need to know:

1. Interest rates from central banks of each currency

2. The biggest exporters

3.  A lot of info about commodities.

Just those are a handful, so I'll be on the lookout for websites, articles, etc. that will make that research easier.

So far I do my trading early in the morning and at night, which means I can catch Tokyo and Germany at night, and catch London and may be New York in the morning.

Next few chapters, I'll be learning actual strategies to enter and exit trades. Then, I'm going to practice particular ones (and explain them here) until I know them in and out, and see how they work for me for the rest of the year on MetaTrader.

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Finally, I read about these reverse ETFs for commodities today; an alternate way to short stocks since it's not offered on RobinHood.  Based on the looming potential recession, and dropping oil prices, I went ahead and bought a couple shares of ERY for $58.85. We'll see what happens. I plan on holding it for just a couple days.  It's been rising for the last few months, so I'm doing what I've read not to do and that's "jump on the band wagon" with rising stocks. I just want to stay active, but it's true, I have done NO research on this ETF. Later.

Reflections on Forex and Options

I listened to some of the "Options Alpha" podcasts this morning, and the host discussed spreads in options trading.  The term "slippage" was used in regards to the costs of doing a round trip (open and close) trade.  These expenses are clearly seen when it comes to options.

On the MetaTrader platform, when you open a position, it starts out negative because of the spread.  If you buy 1 lot with a spread of 30 pips, using leverage of say 1:100, that's like -$30.00 or something.   Remember, lots in forex are $100,000, while lots in options are 100 shares.

Oh, regarding the terms associated in the MetaTrader platform! Here's a good link to explaining what I'm talking about right now: luckscout

Margin Level is (Equity/Margin)*100%.  It basically gives you an idea of how close you are to "maxing" out your leverage.  The demo brokerages on MetaTrader4 are all a little different. Some charge fees for each spread in addition to the fees for the spread.  Others don't charge anything for the transaction, but only for the spread.  It's official, small spreads = huge liquidity, which is what we want.

I learned about how some forex platforms don't charge commissions, and others do, so it literally pays to do your research before throwing money into one.  I started an article on investopedia about how to shop around.

Right now I'm working on the players in the forex market, so more on that tomorrow probably.  Terms for MetaTrader, check.  I'm still in a trade, and I have yet to do more on RobinHood. We're getting there!