My philosophy of Trading

[nanningbob]

Another gem of a comment:

Jacob, there is a perception in parts of the retail community that market makers intentionally drive price in the opposite direction of where they really want to go. For example if they really want to be long, they drive the price down to suck in liquidity and then run stops on the way back up. Is there any truth to this, idea?

Skenobi explained it very well. I've never seen a spot major dealer sell down say eur/usd 20 or 30 pips just so he could get it cheaper. It would take a lot of capital to get it down that much and when and if he were able to accomplish that feat he would have to first cover his short and get long, just doesn't happen. But Skenobi said they do love to trigger stop loss orders, its easy picking for them.

[nanningbob]

Skenobi/Jacob... Out of all the traders you worked with professionally, what was the predominate trading style, length of trade, were you all the same? Was there any style the bank absolutely did not allow?

In the Banks I worked in, there'd been no predominant style. Some are old-school price action guys like me. I know a handful of Ichimoku fanboys. Some guys were classical Dow theory chartists (those guys still exist). Some still like using MAs and MA crossovers. Only rookies use stuff like MACDs, RSIs, ADX lines etc until they realise it's mostly BS.

And I don't know a single Elliot Wave counter, and I have no doubt that Elliot Waves do work for someone somewhere out there...

[nanningbob]

More good stuff. I am glad others are saying these things and are able to do it in a way different and probably better explained.

Unless you are an hedge fund manger, you will never make real money trading for an institution. Profit flows only on high levels. Be a professional trader, be a speculator, work by yourself, it's a better way and more a wealthy way. You can be millionaire in 12 months, and I will never show you the way because you have to believe to succeed.

I used to believe that you can make a million in a year when I was younger. In fact, you can, just like you can be a millionaire in Vegas on any given night.

But a point comes when you stop gambling and start treating your forex trading like any other business. You will stop trying to get rich and instead focus on good business practices.

Anyone who begins to start treating their trading like a business, and use sound business practices will get that million I am sure. But it will not be in one year.

[nanningbob]

Now do you understand why I use large SL or none at all? Why I try to follow the long term trend and stay out of the slaughter houses? Here is the confession of an institutional trader when they see your stops or even if you hide your stops they still will get you from everyone else who places them.

Why do I use multiple positions and improve my entrances? If they make a run I just add to my positions and wait until my correct analysis comes into play. I love this stuff.

This is what I do when I see other people's stops: I run them.

When I run stops, I don't use stops on those runs, because my targets are usually less than say 20 pips for a short term kill. Some guys go for more, I guess I'm not that greedy. I do use mental stops however in case my runs go sour. That takes discipline which the Banks pay me big bucks for.

When I run stops, trend direction is always at the back of my mind, but not a factor because, as I've implied, my targets are very short term. I don't use technical tools other than my own eyes and price action on the screen.

[nanningbob]

My short term taking profit.

Some people use volatility indis I dont . Volatility is the first 2-4 hours of a trading session. So my TP will be 2+ hours into the JPY session, 2-4 into the euro session or up to an hour before the USA session and then 2-3 hours into the USA session. During those times is when price is going to move. Some exceptions are JPY bond sales in the afternoon (watch for the news) and USD interest rates (FOMC news) are in the afternoon. When the move is done I will take my profit and look for the retrace and enter again next day or possibly next session or two. I will often look for further move after the JPY session. If I want to enter a second time I will go to a lower TF and reenter there. If CSS goes outside the 20/-20 I will then look to enter two positions like I did on the gbp/usd yesterday. If both are outside I can look for 3 entrance points. My favorite entrance points are xxx.000 or xxx.050 or Daily pivot or an obvious S/R area.

I am looking at a new indi which plots the d,w, pivots, open, and R/S on a bar to the side of the screen, kind of like the dummy lights with lines.This way you can see them all but they arent all over your chart. When you see them all in the same area you will see an area of congestion and play the bounce or the breakout. I havent watched it enough yet but I am thinking TOP or BOTTOM of TMA with daily, weekly, monthly, S/R congestion sure would be a good area to play a bounce back down/up into the TMA.

When trading a session look for the main currencies of that session to move the most. JPY session your best bets are JPY, AUD, and NZD crosses.

EURO session you will see Euro, gbp, chf crosses usually move the most.

USD session any and all can move because both the euro and usd banks are open. That is why it is the most volatile.

Certain currency crosses are limited to when they move most of the time. USD and CAD banks are closed during Asian and Euro sessions so usd/cad is limited to USA session for movement. Occasionally it will move in the EURO session but not likely.

AUD/NZD will have its biggest moves after USA session close and before JPY open. This is usually off of a news story.

Some currencies will move in all sessions, gbp/jpy, eur/jpy, and gbp/nzd, eur/nzd, almost always have movement every session. AUD, JPY, NZD crosses with each other will normally be quiet during the Euro session and be most active during Asian sessions and USA early session. So these are things I keep in mind when I am trading.

USD fundmentals when strong trump everyone. GBP, EURO (CHF), JPY are next.
AUD, CAD, NZD and other curencies get crushed no matter what their fundamentals are against the big 4.

GBP is supported all over the world since it used to be the world's trading currency, now held by the USD. (some argue the USD will be worthless if it losses its world wide status, GBP and England survived when this happened and so will the USD). Rise of the RMB means nothing, being the world's 2nd largest economy its ridiculous they are not more powerful than they are. RMB rise is normal and does not mean USD decline, just that they have to share the stage just like the YEN when they climbed to the 2nd biggest economy and the EURO climbed to the biggest economy as a group. So dont get suckered into that stuff.]

Often foreign banks will come in to support the GBP (like bank of India, Hong Kong, British Petroleum, etc.) One of the reasons why the GBP is such a ranging pair most of the time, just check your monthly charts to see what I mean. It will burst to a high and low area and sit in that area for years until it bursts to another area, like the gbp/cad did just this year. Those in the Commonwealth like to see a stable GBP that stays in a certain range for trading purposes. Know these areas and you can be successful trading the GBP. Study your high end charts even if you dont trade high end charts. You will get a feel of a currency and what it can do.

[nanningbob]

I am going to study this issue with pending orders:

(There are a few variations. This is one.)

When I see somebody else's buy stop (for instance), I (usually in confederation with other like-minded counterparties) will pay up "in size" until the stops are filled, and then close off our longs just as quickly.

Note that in all cases, retail trader stops are not even glints in our collective eyes i.e. we only trade with institutionals and OUR market prices are transmitted to the retail world. If retail trader stops get killed as a result of what we did, it's just collateral damage.

This is what you are thought of as you get in the way of the big boys.

[James Roscoe]

I am going to study this issue with pending orders:

(There are a few variations. This is one.)

When I see somebody else's buy stop (for instance), I (usually in confederation with other like-minded counterparties) will pay up "in size" until the stops are filled, and then close off our longs just as quickly.

Note that in all cases, retail trader stops are not even glints in our collective eyes i.e. we only trade with institutionals and OUR market prices are transmitted to the retail world. If retail trader stops get killed as a result of what we did, it's just collateral damage.

This is what you are thought of as you get in the way of the big boys.

This is why I have grown dubious of trading "education".

If we retailers were all trained at say, babypips, then clearly the dealer knows this too. So he will look for stops within his financial ability to move price and hunt those. Let's sat there was a swing low on the M15 chart and the retailer is now long because of a CCI trigger or something like that. If we do as babypips says and use a stop loss and put it at the swing low, and that swing low is 20 pips from where price is now, we can expect to get taken out more often than not.

As retailers we have to deprive the enemy of the high ground. They cannot see where our positions are. The only way to do that is to not use stops of any kind, and instead use a dollar management system in which if our DD becomes greater than X percentage of the account, we then decide to close out trades. But it is in a time and place of our choosing, not theirs.

You were right on about that bob, and it is just good fortune that the thread at FF is going on, it vindicates every thing you have said over the years about stops.

[nanningbob]

A couple of questions for the two of you: 1) Do you believe getting flow information (who's been buying/selling what and the order levels) is overrated? 2) I've seen reports written by the bank dealers in which they describe what happened, bit of flow info, key intraday levels etc. They also mention some of their own trades and what they are looking to buy/sell. Is that real or are they just putting out some ideas to get the clients to trade? 3) Why can't an important client not just call a dealer directly, but needs to get the order through a salesperson? Isn't that slowing the process?
4) Is it true that the central banks do much more speculation in the FX market than most people believe? What about the real money funds?
I'll be happy to give you my thoughts

1) I traded NDF's not the majors so my perspective may be a bit different. Order flow is good from that standpoint we dealers would share amongst ourselves where we had orders to buy and sell in our currencies. For example a colleague may want to sell USD Philippine but I may have bids lined up, I would tell that dealer they would have to get through some big bids before it cracks and he should wait until the orders get cleared out. It also gives us some protection and opportunity BUT there wouldn't be any way for you (or anyone outside my bank to know that at least without getting into serious trouble but people talk). BUT ultimately if an order can move the market its a good order if the market doesn't move than its really pointless. I will say if a particular Hedge Fund that I respected came in with an order I would take notice and share that info.
Again, the retail trader would never get this information (nor should any other institution but my own).

So maybe you or someone here can tell me what you mean by order flow from your perspective? I'm curious how you get your information or how you interpret order flow. From my standpoint unless you run a trading book or a friend of yours does there shouldn't been any possible way to know the flow.

2) those reports are real, we do that, like you said, to try and generate customer business usually from the Fund side (corporate don't trade they just hedge). Whether you have a position in it is probably not a requirement. We just need to tell a good story which economist and strategists are very good at.

3) Dealers don't talk to the customers directly because the salespeople are paranoid and do not want to get left out of the loop. Them being the intermediary is how they got paid, they will protect that relationship like a cornered animal. But don't get me started on sales people I'm trying to keep my blood pressure down

4) I couldn't answer the last question regarding central banks, they didn't deal with our bank as far as leaving orders or trading with us. Except the HKMA (Hong Kong CB) I would talk to them when ever the spot got close to their floor at which point they would be in there for yards and yards and yards of dollars, no one succeeded in breaking that floor.

[nanningbob]

This person echoes my similar thoughts about the market:

I believe the market is just random enough to be fun, and orderly enough to make profit, if you are careful, understanding , and reactive. As in real life, following any rule unthinkingly can get you in trouble.

A quiet day demonstrates what happens when no banks are around to push things, doesn't it. There are some 25% of traders who make money doing what they do, according to statistics. That 95% thing is a "factoid" a lie repeated so often on the internet that people imagine it to be true.

Most of these traders don't advertise themselves, because the army of detractors is out there, ready to make mincemeat out of every reasonable thing anyone proposes.

[nanningbob]

My basic thoughts on EAs:

The subject of EAs interest me because I use them but not 24/7. I find them useful when I think a market is going to do a certain thing so I use an appropriate EA for the moment. For example if I think the market will trend I will use one that works good in trending markets. If I think the market is ranging, I will use one that works good in a ranging market. If I see a news spike and I want to counter trend trade it back to its median I can use a CT EA. This way I dont have to wait at the screen for the right moment or use a pending order to guess where I think it might happen. Which leads me to my statement.

The problem with full fledged EAs is they dont have the ability to change to market conditions, sudden news stories, holiday dead periods, pre-news flat times,etc. They are stuck in a set of rules that cant possibly adjust to the various type of market movements. So they build up losses when in reality if only used in markets they are designed for they can be successful. So the human mind though has the ability to adapt to changing markets and adjust the trading style accordingly. The mind can know a news story is coming and not trade and wait for the result, its holiday time so dont bother, two countries are about to go to war or end one. A certain country is going to make a major change in economic direction. The human mind can make adjustments for these things an EA cannot. So EAs can be used like a golf club in a golf bag. You size up the situation and then pull out the appropriate EA for the market. Cant use a putter on the tee and cant use a driver on the green but both have the appropriate use when conditions are right.