Profit Scenario Trade Blog Thoughts Of a Professional Trader

Trading on Forex market is not an easy job. It requests many skills, and characteristics including charting, mathematical and statistical skills, patience, discipline, planning, etc.

Theoretically everything could be learnt during learning phase but there are a good couple of things that must be developed and/or applied at the very beginning. Personal experience is what makes a trader confident to execute his/her trading plan. Building trading confidence is not an easy task – especially not on the Forex market. It certainly needs time to practice in different situations and to experience (and to survive) both winning and losing trades. It is hard to estimate the time it takes as it highly depends on individual circumstances. Some can get there in a few months with a couple of hundreds trades and other may need more time and more trades.

Unfortunately, most beginner traders mess their learning phase up with applying bad money management due to their emotions (greed, impatience) or due the obvious lack of relevant knowledge (money management, risk management, math, probability theory, etc). They just simple do not spend enough time on the market to develop their trading confidence – because they lose their assets way before that.

Nowadays most intraday Forex traders use Technical Analysis to predict the chart movements. I mean they use every technical signals, price patterns, candlestick patterns, technical indicators and their combinations to get more and more reliable predictions for future movements.

Did I just say future movements? Who can see the future?

For goodness sake we supposed to be Technical Analysts, not oracles. After all it is not a wonder that some ‘school’ even consider the calendar and astrology to determine future price actions.

There are so many ways they try to predict the future and they try it hard…but no one could do it with decent reliability. No matter how hard they try, it is still guessing at the end. It is the future; no one can see the future.

Chasing this dream can be very frustrating. After a lot of hard work and predictions chart goes the other way. Again. It is disappointing, it is frustrating and it is in red.

The most common mistake is trying to predict the chart. Wrong. I firmly believe that all the timeframes the most Forex traders work on intra daily are totally random. No reliable predictions can be made on them.

Instead of this Technical Analyst should try to develop a proven lucrative trading strategy that covers most of the possible movements with positive gain.

Observing the chart we can notice regular movements, price actions. Based on them we develop different series of actions, say ‘scenarios’ (I like this word, haha) for the case the price move that way or another one and we still make some money. Obviously some movement can be unfavourable; they are going to be the losing ones – we have to filter them out, or reduce the risk taken in those cases.

Up or down? Which one happens next? Honestly, I do not know.

But it does not matter as long as I can make money with both. How can I do that?

I observe the chart. I recognize its regularity. I develope the action plans for the situations could happen. I test them. I modify the rules until I am satisfied with the possible outcomes. I prove it with statistics. I put the rules in written form. Now, I follow them. I execute them. I trade them. I monitor them. I take corrective action if needed.

That is the approach I call Technical Analysis (not prophecy).

Posted under Technical Analysis

During developing and executing Forex trading strategies you can decide what is more important for you: high reliability or high return per trade. Unfortunately, you can not get both on a long term. Fact.

High reliability trades give you confident. Easy to execute them and good feeling to have a relatively high number of winning trades. Low Risk Reward trades give you great profit. Hard to execute them and it can be frustrating to see a relatively high number of losing ones.

If you go for a trading strategy with Risk Reward Ratio = 1:1 your losses are going to be around as the same as your winning ones in dollar value.  If you risk 1% of your trading capital on each trade, let’s say $100, you get around the same amount of profit when you win, say 1% or $100. You can only make money with that kind of trades if you have more winning ones than losing ones; it is clear. To achieve this you need a trading strategy which provides you with at least 65% winning ratio (reliability). Hypothetically, you could make money with anything above 51% reliability but in reality it is not enough: do not forget the fact that you have to pay brokerage (spread, commission or both) for both winning and losing trades.

The lower timeframe you work on, the higher reliability you need to make money (because of the poor proportion of the ATR and spread).

It is important to notice that mathematically you only have a 50% chance to reach either your Stop Loss or Profit Target level with Risk Reward Ratio = 1:1.

On the other hand, you can go for low Risk Reward Ratio trades with an obvious low reliability. Again, hypothetically, you can only make money with a trading strategy giving you only a 30% chance, if you can reach the Risk Reward Ratio = 1:3.

Do you follow me?
In this case-for example- you lose 60 trades out of 90 (60 x 1% loss) and you only win 30 trades (30 x 3% gain) and still make money (+30% profit in total 90 trades). Unfortunately, math is always against you; mathematically you only have 25% chance for a winning trade with 1:3 Risk Reward Ratio (75 – 25).

If we have  trades with low risk and high reward, we call them correctly LOW Risk Reward Ratio trades and not high; just think it over. RR =1:10 is much LOWER ratio than RR =1:1, right?

As you see in both cases you need an “edge” to beat the pure mathematical chance; that ought to be your trading strategy, that ensures the favourable conditions of entry (and exit) points.

Another thing to consider:  there is a certain limitation of increasing probability, as a 100% (hypothetical maximum). If you have a strategy with a good 65% winning ratio you can not double the chance up, right?

In contrast, there is no limitation of getting better (lower) Risk Reward Ratio; If you have a strategy with RR =1:3 you can increase the expected Profit Target to 1:6, can’t you? Mathematically you are going to have less chance to reach the increased Profit Target, of course.  Anyway, you are going to make more money with that, trust me. I had a good couple of trades with Risk Reward over 1:10.

Here you are a bunch of my trades from February (2 weeks ago or so, check them out on your chart):

Risk Reward = 1:4.5 trade on AUDUSD M30

Click on picture to enlarge.
In MetaTrader4 Account history choose your trade and drag to chart; that is exactly how I got these pictures with entry and exit points shown. Real account, real trade, no trick.

Risk Reward = 1:4 trade on USDCHF M30

Click on picture to enlarge.

Risk Reward = 1:4 trade on EURUSD M30

Click on picture to enlarge.

Risk Reward = 1:9 trade on EURUSD

Click on picture to enlarge.

2 trades on AUDUSD with excellent Risk Reward Ratios

Click on picture to enlarge.

Please note that all screenshots were taken directly from my live MetaTrader4 account. In your MetaTrader4 click on  Account history tab and choose your trade and drag it to chart; that is exactly how I got these pictures with my entry and exit points shown. They were my live trades on my real account, that is how I make money. Calculate.

Posted under Money Management, Technical Analysis

As you could see on YouTube in my trading video most of the time I am quite accurate in determining the Profit Targets of my trades (not always, unfortunately). I put all effort to do that because that is how to make money, right? Once you are in a good position your goal is to make the most out of it.

Many of you asked me the way to determine Profit Targets after seeing that video. Although it is a part of my inventions (say part of my trade secrets) I hereby share my method with you; you will be surprised how easy it is.

You know, I share it for free, because I feel like it is similar to poker games. If you show your cards to one you must show them to everyone – to give them the same chance to win.

So here it is:

I trade my Forex Trading Strategy (any lucrative strategy) with its Profit Target which –at that stage- most likely based on some Technical Signal (support-resistance level, Fibo-level, candlestick pattern or anything else).

Doing this –obviously- I log every single trade in my trade logbook. However, I do not only record  the entry and exit points but many other details about the actual market condition. After closing a trade in profit or in loss -it does not matter- I keep monitoring the chart and later I also record the maximum pip distance I could make with that position. So, despite already closing that trade at its Profit Target, I record the maximum run it made –after that. It has to be the maximum run (pip) the price made after I exited – without touching the Stop Loss level. In my logbook (spread sheet) I separated a column for maximum run of each trade and I record the price later on.

Once I have a sufficient number of trades available to make reliable statistics (usually more than a hundred on each currency pair and on each time frame) I calculate (not me, the spread sheet does ) the average maximum run and its dispersion, so I can see the possible optimal Profit Target distance that I should go for. Basically, I can see how much the chart usually goes further in my favour AFTER I exited on Technical Signal.

I always keep my logbook up-to-date showing the overall average maximum run and the average maximum run for the last couple of trades (10 trades, one week trades, etc. depending on) so I can see if there were any differences (market changes – consecutive shorter or longer maximum runs represent lower or higher volatility of the market).

In this way I can always keep my Profit Targets optimized – according to the actual market condition.

So, the Profit Targets I use this way are not based on Technical Signals – they are statistical signals – do not look for them on the chart; they are in my statistics. Different currency pairs have different values; different time frames have different values –even with the same strategy – according to their “personality”, of course.

Obviously, this method can fail sometimes and bring losses, too. If my optimized Profit Target distance is longer than the actual run was, the price never reaches my target – I lose. That’s ok for me, that shorter maximum run then modifies the Profit Target of the next trade – the system fixes itself (the more losing ones come, the shorter the next optimal Profit Target will be).

That is my way to optimize the Profit Targets; it works very well with trend following strategies, sometimes I combine it with technical exit signals above a particular Risk Reward level – given by my optimization.

Posted under Technical Analysis

Dear Fellow Trader,

I believe that there are many traders who have problems with proper execution (of their strategy). During the past years I developed my method for an easy and precize execution which always helps me stick to my strategy. If you have ever experienced difficulties to follow a trading strategy, any strategy, this is exactly for you.

I thought that you may find it useful, so I put my thoughts together in an e-book and I hereby share it with you.

Take it as my big honest THANK YOU for being with us!

I wish you all a Merry Christmas and a Happy, Successfull New Year!

Go for it and download your FREE copy right NOW! Link:  http://www.profitscenario.com.au/My_Christmas_Present_For_You.html

Read it, Use it, Enjoy it!

P.S.: feel free to share this link with your friend: http://www.profitscenario.com.au/My_Christmas_Present_For_You.html

Posted under Market Psychology

I am very happy to announce that our private trading company has started to trade legally, officially and practically, as well.

After a long time planning, searching, selecting, preparing and forming procedures, this week we have finally started to work together with our complex strategies on the Forex Market. We model high growth managed funds with the flexibility of individual investors.

We trade all around the clock performing perfect mathematical trading series. Our strategy combination is well diversified both in time and scale ensuring the persistent and evenly distributed work load, gains and losses. Doing this our trading performance chart can converge to the ideal evenly raising straight line.

Forex Intraday Strategies Combined

We work with multiple trading strategies on multiple time frames on multiple currency pairs. We follow very strict trading rules and apply very tight, still exceptionally efficient Money Management rules.

I am very proud of my PARTNERS, I will be working with. The other day I was thinking about us. We are all individuals, having not too much in common but there are certain points we all met: all of us have already tasted success and continue to strive for it. We are all disciplined, committed, dedicated, hardworking and good team players. Unbeatable combination, isn’t it?

We, as a team, are highly multi skilled. We have good planners, good mathematics skills, excellent computer skills, great excel experts, statistical systems, genuine business leaders, great organizers, educated technical analysts, graduating financial advisor, and above all: disciplined Forex traders with broad trading experience. With these combinations we can not fail.

That is why we are so confident in our trading performance that we are going to report our daily trading results regularly, transparently and publicly in our website (coming soon). No comments, no explanations, no excuses: pure results. They are going to speak for themselves.

Check back for more details soon.

Our objective is to show the investment world of today that a small group of highly educated traders can beat any commercial investment structure and can set new standards in investment returns. We can. We will.

Posted under Market Psychology, Money Management

If you spend enough time watching and analysing charts you start to recognise certain principles and regularities of the movement either in time or scale or in both.  Sometimes you find those certain features absolutely useless and you find others useful and promising.  Apparently the wisdom is to recognise the difference between them and bring the most out of the useful ones.

The deeper you dig in your surveys the further you get.  After tens of thousand hours I have spent on the charts (more than 5 years now on intra day charts) I have got to the point when I had to make a very hard decision: should I believe what I’ve learnt, what others keep saying OR should I believe what I’ve just discovered – even if  that one is controversial?

I was so confused that I checked my discovery many times over and over again – and I always got the same results.

It has REALLY been (and still is) shocking and scary because I had to decide whether I throw away 80% of what I’ve learnt from others and follow my revolutionary new direction or not. Although my invention truly is revolutionary it still sounds logical.

Galileo Galilee (1564-1642) could be in the same situation when he set his face against the whole dominant system, disputing for heliocentrism over geocentrism. We all know that at the end of story he was forced to revoke his statements and to spend the rest of his life under house arrest.  Although he never gave up his firm belief, unfortunately, his tenet was only proved and certified some 200 years later. Until his death he kept burbling: ‘and yet it moves’.

So, now, basically I have two main choices left.

First, I can fight allegorically 80% of the Forex trader community to convince them about my truth. Or, second, I can remain in the background and keep trading according to my very lucrative rules. Publicity or pure money – that is all about it, basically.

You know what? Well, it is NOT that hard question, is it?  :-)

Now I am fully confident that I am right; my results and account size prove that to myself and to my family – that is what matters.  I keep trading in my own way making good money on the Forex market; I am happy with that. The fact that more than 90% of Forex traders keep losing their assets just makes me more confident that I am right doing something very different.

There is a saying that ‘There are two things people want more than sex and money – recognition and praise’. Yes, I think it is true but not with compromising money (and sex?) for recognition and praise, huh?

Posted under Market Psychology

There are certain Forex trading strategies, especially intraday ones, which work only in a given time period or in a specific trading session. There are other ones which triggered by time, for example news trading or session breakouts, daily high-low trading, and many more.  Those time sensitive trading strategies depend on time zones; different time zone setting greatly affects their outcome.

Although daylight saving settings could be so obvious, they are not.  For example here in Queensland (AUS), we do not have any daylight saving settings at all; probably that was the reason that I totally forgot that last year and I lost a couple of time sensitive trades wondering why they don’t work in their usual way at all.

Anyway, most of the World has to set the clock twice a year; that is why it is easy to forget. This weekend (Sunday, 30/10/2011) Europe and UK have to set the time backward by 1 hour.  Keep it in your mind, you too.

Unfortunately it’s not that easy, USA has different system so New York is only going to catch up with London the next week. (Sunday, 6/11/2011).

How do daylight saving settings affect your intraday trades?

First of all, if you work with time sensitive trading strategies you have to watch for timing.

Second, depending on your Forex broker’s location, your chart can be shifted by plus or minus one hour further from your usual settings. Unfortunately there is no rule for that, some brokers follow the daylight saving settings, while others don’t.  Make sure that you check with your broker in time.

Some trading platforms don’t allow you to set the time manually as that comes from the broker’s server time.  A good example for this is Meta Trader 4 (MT4) which is the most commonly used trading platform among private investors (approx. 85% of the traders hang on that).

Third, until New York is catching up with London’s time (1 week) we are going to have an hour less on chart from London lunchtime to New York opening as this period is shortening by an hour.
After 6 Nov we will have to wait another extra hour for high impact US economic news; after setting the clock they are going to come late night at 11.30 PM (Australian Eastern Time) which is a pain for us.

Watch for your settings, modify them if needed.  Do not forget that all mistake made cost you money: either by actual losses or by missed winning ones.

Posted under Technical Analysis

There are many ways to evaluate your success on Forex Market. You can measure the gain in percentage of capital, in percentage of the margin required (position size), in percentage of the ratio of losing/winning trades (reliability), in dollar value, in number of PIPs, etc.

Personally, I believe that there is only one way to measure the results – all the other ways are suitable only for the purpose of impressing the other traders / friends.

 Recently I saw advertisements saying that they managed to make 1000 pips in this month, or something like that; which is the perfect example of impressing others – without telling the whole truth.  Here is what I think.

 The number of pips you achieved during a certain period depends on many factors but mainly on the timeframe you worked on.  Scalping on M1 (one minute chart) you probably go for 5-10 pips per trade; in contrast if you swing trade on daily chart you most likely target a couple of hundreds pips per trade. Supposedly, you risk 1% per trade (and calculating with Risk Reward Ratio = 1:1, just to keep it simple) you can make the same amount of money in both cases.  Scalping for 5 pips within 10 minutes or swing trading for 120 pips in 2 days could give you the same result: 1% gain. 

Notwithstanding it sounds well that ‘I’ve managed to make 1200 pips in this month (swing trading)’ , we all know that it most likely 10 winning trades (say 10% gain, which is excellent). In contrast the fellow trader could say ‘I’ve managed to make 50 pips in this week, scalping’ and guess what? It does not sound that fancy but he made much more: 10 winning trades in a week, say 10% a WEEK! Can you see the difference between expressing the results? Try to read between the lines, always look for the whole truth.

Click on picture to enlarge

In this trade I caught 674 pips in 2.5 hours. Wow!  Sounds great!  But the truth is it gave me around 2.5% gain on my capital (which I was happy with but it’s far from my best trade)

Another ‘misleading’ calculation is when they claim that the ROI (Return On Investment – such a fancy, trendy term – unfortunately most of them slightly changed the way they use), so the ROI was 100%. Wow, everyone who made less than 100% last night should be feeling ashamed? No, not really. Again: they often calculate the gain only on that position, saying that, ‘Ok, the margin requirement was that much, I managed to make that much profit, so it’s 100%.

Wait a minute, wait a minute. What you missed to tell us is that you used very high leverage, that is the only reason you could gain that much (compared to position), first. Second, to be able to do that you had to have a 50-100 times bigger account so that 100% gain on the position gave you 1 or 2% gain on your total balance, right? Yeah, but saying 1 or 2% gain no one get impressed; that is why they like saying mumbo-jumbo percentages and/or pips.  They just want to reap the laurels; it’s so far from the truth. They don’t really lie; they just don’t tell the whole story. Do not be fooled by them because you don’t even notice and you fall into the trap, chasing the market, overtrading your account and/or you capabilities to chase the same results.

The other ‘favorite’ approach is when they say: ‘I’ve just banked another $150’. Yes, that is great but how much did you risked for that? $1500? Ahh, that’s miserable, don’t be happy with that, you are going to end up in massive negative balance.

I’ve been witnessed a conversation the other day. 2 fellow traders talked about their results, Mr. Big Head said proudly: I made $750 this week, how about you? Mr. Budget responded with downcast eyes: $100, mate. Wow, huge difference, who is the lucky guy, huh? Because I knew their situations I asked them to convert that to percentage. Mr. Big Head managed to make $750 per week on an almost $100,000 account which turned up around 0.75% gain. Mr. Budget earned $100 per week on a $2500 account, say 4% profit. Hmmm, huge difference, right?  Well, think it over who has bigger potential.

Without putting my nose in anyone’s business (or pocket), the only honest way to express (or to compare) the profit is to calculate the proportion of the gain on capital. If it’s 15-20% return per month that’s great; regardless its’ dollar value. That can be $100 or $1000 it does not really matter; for a long term +20% gain per month means wealth anyway (paired with discipline and proper mindset) .

Posted under Market Psychology, Money Management

 No one could miss the news day after day about Gold price that flies sky high reaching newer and newer all time high records. In parallel Swiss Franc (CHF) strengthens against everything so much that already jeopardizes the whole Swiss economy.

These things should not surprise anyone; we all could expect this because these are logical consequences. Why? Let’s talk about this.

I wrote an ebook more than a year ago, more precisely I published that on 08/05/2010, with the title of ‘The Biggest Recession in our days’. If you remember, in this ebook I discussed the economic facts and their consequences in the future. More than a year ago I predicted this global economic decline including and highlighting the Gold and Swissy rally (refer to that ebook page8), because those steps were so obvious. Why?

During global economic recession the investor’s risk acceptance converge to zero and they liquidate all their investments. They start it with derivatives and shares closing all transactions, regardless of their actual performance. Obviously, it is definitely not logical step, but seeing their profit melting, logical mindset jumps out the window.  The panic takes over the control and they sell out everything.  It is just the cherry on the cake that everyone was greedy , so they all used the biggest investor trap, the leverage, and it’s highest form available, when they bought their investment packages. Doing this they were, who actually induced this situation we are in again, with being able to sell much more than actually available (due to high leverage) and with forcing the prices unbelievable and illogical low levels. These low price levels obviously mean bankruptcy for investors and companies, as well. Trap, that’s what I call it. When greed gets an opportunity to use high leverage.  Here we are.

Anyway, the show must go on, smart investors don’t let the money sleep, they must be invested. Where and how? Commodity prices are falling, share markets are collapsing, stock market indices are falling down, property prices are sliding down, everything seem so dark. Only two stable opportunities are still shining: Gold and Swiss Franc.

Both of them already passed the test of time; they already proved that during depression they are able to hold their values. Gold always has been and still represents the real value; this is probably because people still associate the real value with the former gold reserve – which does not exist anymore.
Swiss Franc established its stable value ‘award’ during and right after the II. World War, which still stands. Investors think that if CHF managed to keep its value during a World War it cannot be any worse, so they can trust on that anyway, in any situation. You know what? Simple, because they think that and they keep exchanging everything to CHF, it really keeps its value. That’s exactly what we call self-fulfilling prophecy.

Well, these are the reasons, now, when everything else seems to lose the value, people turn to Gold and Swiss Franc and they invest all their liquid assets into these two. The next step is obvious, the more they buy the higher price they reach. Ahh, so its not so good for Swiss economy? Who cares? So, Swiss export is almost dying because of this reason, because everything from surgical instruments through jewels and watches and machinery, etc. became exorbitant, who cares?  The fact that Switzerland’s second largest export market, USA has to pay more than double than they used to pay in 2000, who cares? (back in 2000, when USDCHF was rated around 1.8, 1 US Dollar could buy 1.8 CHF. Today, 24/08/2011, this rate is 0.7936, meaning that, the same amount of 1 US Dollar can only buy 0.79 Swiss Franc.)

USDCHF Monthly Chart - ProfitScenario

 Just believe me Swiss economy cares because they are suffering from this. Exports and its forecast heads downwards, which means Swiss economy slows down, workplaces are being forced to close. 

Both Gold and CHF are highly overvalued by more than 30%. We saw many situations like this in history, right? Everyone used to call them ‘must have opportunity’ when they formed; and everyone call them bubble now, afterwards.

Posted under Market Psychology

Forex trading is a very addictive activity. First of all, there is a possibility to make money, I mean MONEY, without sweating; let’s admit that sometimes it seems to be a fairly easy job. Second, even if you just started to play on charts you could be right even at the first couple of times and manage to make some money – which is a fantastic feeling and inspire you for further trading.

But how close or far are you actually from being a successful trader?

Believe it or not, being successful in Forex trading and playing poker are based on the same principals. At the first sight, both of them seem to be gambling. At the same night when you were introduced to playing poker you could win a good couple of hands. Even a few hours later you could beat your friend (temporary), who taught you to play earlier.

The situation is exactly the same with trading. You could be winner at your very first trade. On the top of that, even if you lost a trade or two, you could feel that you were ALMOST right, just a small modification and it would be great.

Wait a minute, wait a minute. It could not happen at (for example) playing golf, right? After practicing the basics for a couple of hours no one was able to beat a player, who already plays for years. Hmm, that makes sense. But where is the difference? The difference is the luck factor which plays a big role in AMATEUR approach in playing poker or Forex trading.

There is a saying that:

Even a clock that does not work is right twice a day.

Do you know how I mean? Just because you won a couple of hands in poker, it does not mean that you are better poker player than the other one. Just because you closed in positive gain a couple of trades on Forex Market doesn’t certainly mean that you were right, or you were on the right track, at all.

There are millions on the World, who can sprint 100m in 12 seconds. There are thousands, who can complete that distance in 11 seconds. Currently, the World Record is 9.58 second for men (10.49 s for women). Those thousands are ALMOST there, right? Just a couple of tenth or seconds and they are there, right? Hmm, frankly, far from it.
Just trust me, to be able to cut away a couple of tenth and seconds cost them months or years, many many hard woring hours, sweat, pain, effort, focus, concentration.

Tricky, because the goal seems to be so close and tangible – but the path actually leading there is much longer. That is the trap.

The truth of Forex Trading is someting like this

If you take a closer look you are going to notice that both of playing poker and trading Forex  depend on probability theory and Money Management. If you are good enough to recognize the principals (probability theory, set theory, mathematical series, rule of big numbers) and be able to put them together and create rules to best describe the proven lucrative activity, you have your trading strategy. I mean, for longer term, not just temporary for a couple of hands/trades/nights. Combine that rule system with well-thought and optimized Money Management and you are almost there. I said almost, because still you have to follow those specific rules, you have to execute your trading system to actually make money (and that could be another hard part).

Trading on Forex Market is very tricky. Seems to be easy but just trust me, it is hard work. Long, long hard working hours, sweat, pain, effort, focus, time and money.
So, how close or far are you from your success? You tell me.

Posted under Market Psychology