The True Risks of Trading

Boris Schlossberg

  1. You had an argument with your spouse.
  2. You woke up with a vicious headache or a head cold.
  3. Someone you know belittled your judgment about a trade.

Tell me, after each and every incident above did you trade worse or better?

How about.

  1. You missed a target by 0.1 pip and the got stopped on the trade
  2. You hit three stop outs in a row
  3. You were in a trade when a news bomb hit and you suffered -100 pip slippage off your intended stop

Did you trade better or worse then?

Or.

  1. You watched the currency rise all night long and were convinced that it was a long bias and then it reversed all of its gains and more so./li>
  2. You been trading a set up you were sure would work, but when you did a quick backtest it turned out to be a massive loser./li>
  3. You missed a trade that was a winner and so decided to do another trade in hopes of replicating the experience./li>

Did you trade better or worse?

I think we all know the answer to that question. The funny thing is that none of the issues I raised above have anything even remotely to do with a particular strategy you are trading. Yet they can all sabotage your long-term results far more than any specific setup you choose.

Every trading guru likes to pretend that trading is logical. Just do A when B occurs and voila you will be rewarded with endless and consistent pips. It just like making widgets. Stamp them out and collect the revenue.

Of course, nothing can be further from the truth. Trading is not at all logical. Its psychological both in the market structure and in the way that the whole process works, and while we obsess endlessly about this indicator or that one, this exit level or that one -- the true risk in all of our trading lies in the day to day issues above.

Each one of those pressure points is about losing control. Indeed, the whole purpose of the market is to FORCE YOU TO LOSE CONTROL SO IT CAN TAKE AWAY YOUR MONEY.

That’s why it’s important to be aware of the real risks in trading. If you just had an argument, don’t trade. If you feel sick don’t trade. If you got stopped on a bad market break, don’t trade. But frankly, we all know that is advice that we will ignore. Nobody in life ever obeys’s DON’Ts. Not consistently anyway. That’s why the only way to combat those risks is to follow the only DO that can help you stay in control -- trade small. Angry at the world and want to punch your computer screen? Trade the 0.01 lot. You will be very glad you did. It will hurt a lot less than the 100K lot you waste on the market in revenge.

Trading Tiny

Boris Schlossberg

After I graduated college I took my father’s advice to “rent everything from underwear on out” and have never owned a home, a car or a boat my whole life. But whenever I am on the road at some hotel killing time, I turn the remote to HGTV and like a visitor from another planet watch with fascination the endless house renovations on the channel. I love Tarik and Christina.I love Chip and Joanna and I love the crazy twins. I love everybody who flips houses and turns garbage into gold.

But the one show on HGTV that has been getting the most play lately is “Tiny House” where people abandon their complicated, gadget-filled lives in McMansions and exchange them for tiny little affordable homes that look more like toys than actual places of residence. What is perhaps most amazing about the Tiny House phenomenon is that almost no one regrets their decision to downsize. In the end, most people are happier in a Tiny House.

I’ve been thinking about the Tiny House trend a lot recently. There is a huge upside to getting small both in real estate and in trading. Whenever someone asks me what is the first thing they should do to improve their trading, I always tell them -- reduce size. It’s no guarantee of success but it is definitely an assurance of survival. And survival is 90% of the battle.

But let’s take that point further and consider the idea of Tiny Trading. The minimum MT4 size is 0.01 lot -- a dime a pip -- or 1000 units of currency. Lately, I’ve been trading one of my accounts at that 0.01 size and the results have been quite positive. Mostly because I could give a f- about either entries or exits. Stops are easy to take when they are trivial and entries are easy to make because you really don’t fear the stops. The net result is a kind of a virtuous cycle that puts you in the groove with the market and allows you to do all sorts of things that are much harder to do physiologically at a larger size. You can let trades run for a hundred pips. You can trade many pairs at once. You can scale up and scale out of a given trade without feeling any discomfort whatsoever.

Trivial you say? Perhaps not, Today I managed to bang away nearly 20 dollars clicking away at the account in between managing much bigger size elsewhere. 20 bucks may not seem much but think about it for a second. Say you have $10,000 account. There are 250 trading days in a year and you make $20/day with your Tiny Trading. That’s $5000 at year-end. Double that every year and by year seven you are making $360,000 per year in an account that started at 0.01 lots. Granted by that time your size has to rise to 3.2 standard lots but it’s a slow and steady progression to big money.

But let’s just say you simply Tiny Traded for the rest of your life. And every year you put the $5000 in winnings into a 3% carry trade and just let that compound. After 30 years you would have a quarter million dollars trading all those dime pips.

Without stress.
Without care.
And with much better clarity on the market than you probably have now.

Just like Tiny Houses, I suspect Tiny Trading could make a lot of people much happier by getting more with less.

Weekly Forex Trading Calendar for Week of 10.30.2017

Weekly Calendar Calls

We have just posted our weekly news trading calendar for the week of Oct 23 2017. You can download the pdf and excel file by clicking on the Read More Link. These are soft biases on economic data and not trades that we directly trade or track like BK Swing and News.

Excel version of calendar103017

PDF version of calendar103017

Today’s Trading Plan 10.20.17 – EURUSD and AUDNZD

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading sharply higher this morning after the US Senate approved the tax reform resolution last night preventing a filibuster from the Democrats. The next stop is the house. Investors are extremely excited that tax cuts are on the way and have celebrated by taking the dollar, stock futures and bond yields sharply higher. The JPY, CHF AUD and NZD have taken the brunt of the selling but EUR is also down slightly. Sterling on the other hand recovered overnight losses and is trading higher against the greenback on the hope for a rate hike next month. Investors were also encouraged by comments from Germany’s Merkel who suggested that sufficient progress will be made to take talks to their next step. With Canadian CPI and Retail sales due at 8:30am NY, the CAD is trading in a narrow range. We believe further USD gains are likely in the North American session as U.S. traders cheer the news.

*The MAIN THEMES I see today are*

+USD
-NZD
-EUR
+GBP

*Trading Biases*

+USD, +GBP
-NZD, -EUR, -JPY, -CHF
mildly -CAD, -AUD

*Today’s Ideas*

1. Sell EURUSD at 1.1803, Stop at 1.1833, Target 1.1783
2. Buy AUDNZD at market now 1,1228, Stop at 1.1198, Target 1.1248

Cancel ALL pending orders by 3:30PM NY / 19:30 GMT / 5:30AM AEST
Close ALL open day trades by 4PM NY / 20 GMT / 6AM AEST

The Best Trading Advice Comes from A Guy Who Makes Tapas

Boris Schlossberg

Unless you are a foodie the name Jose Andres will mean nothing to you. But in the restaurant world, Mr. Andres is a big deal. He owns 26 restaurants across the world, several of which carry Michelin stars. Ha has also been the face of Puerto Rican relief serving more than 100,000 meals in PR daily.

In short, Mr. Andres is what my grandmother would call -- a mensch -- a good and decent person who also has done well for himself.

Although I’ve known about Mr. Andres for years and have even eaten at his Las Vegas restaurant, I really didn’t give the man much thought until I came across a Business Insider profile of him.

Unlike many Emperor Chefs who brook no criticism, Mr. Andres has stayed humble and in fact, does something remarkable that caught my eye. Every day, before he starts his day Mr. Andres reads every Yelp review of his restaurant. Unlike most chefs who refuse to even consider the words of the hoi-polloi, Mr. Andres takes the reviews seriously and tries to instantly fix matters if he considers the complaints to be legitimate.

This is, of course, easier said than done. No one likes to be criticised, least of all chefs who are some of the most domineering personalities in the world. But Mr. Andres uses a very interesting trick to help him cope. As he tells the interviewer,”Thicker skin is something like, José the person, José the chef, inside me, I’m, like, ‘What the heck do those people think? Who are they? I don’t want them in my restaurant anymore,’ which is good to have, but it’s good that you do that internally.
“And then he’s José the businessman, who says, ‘Man, this is free advice that I should thank the person for, taking the time, and this we will use to communicate.’ Every day on my phone, I receive reports of every restaurant, social media, comments in-house by the guests. We use them. We don’t use them every day, but sometimes maybe something needs immediate attention and other things is information you put together and then three, six months later, you say, ‘Listen, look at the pattern here.’”

Now let’s see how we can apply Mr. Andres’s tricks of the restaurant business to our own little world of trading. What is a stop, but simply a market critique of your trade? It is essentially an instant Yelp review of your actions. Now for Joe the Average Person a stop is a very painful experience that makes him question his worth as a human being. That’s why we all hate stops and why we try to avoid them at any cost, often blowing up our accounts as a result.

But what if we decided that when we engage with the market we become Joe the Trader-Businessman rather than Joe the Average Person? Suddenly a stop is no longer a mark of shame, but a very valuable piece of communication.

Think about it. There are only two reasons why you get stopped. One, you were dead wrong in your analysis and the market went the other way. Two you either mispriced or mistimed your entry. Now while there is precious little you can do about one, there is actually quite a lot you can do about number two. Instead of punching the screen when you get stopped out, ask yourself -- what is the market trying to tell you? Are your setup assumptions still valid? The answers are there. Sometimes it’s a matter of regime change in volatility. Sometimes it’s as simple as taking trades only during the London-New York interchange. Sometimes it’s a question of creating tighter risk control rules.

The point being is that when you start looking at life like Mr. Andres, criticism becomes communication allowing us to improve and make more consistent pips, just as Jose makes delicious tapas.
10.Resources.For.Fx.Teaser1 (1)

Today’s Trading Plan 10.05.17 – EURUSD, EURJPY, AUDNZD, AUDCHF

Swing

*Good morning/afternoon everyone!*

Most of the major currency pairs are trading sharply lower this morning with the losses led by AUD/USD and USD/JPY. Softer Australian data last night sent AUD tumbling and puts the currency at risk of a steeper decline to 78 cents. Sterling on the other hand is being hit by comments from Prime Minister May who proposed cap household energy prices and more social housing. The dollar is also weak with USD/JPY losing ground quickly on the back of falling yields and this is pushing all of the Yen crosses lower. North American traders will have their eyes on Canada and the U.S.’ trade balance reports along with speeches from Fed Presidents Powell, Williams and Harker (all by 10am NY).

*The MAIN THEMES I see today are*

-EUR
-GBP
-AUD
-JPY

*Trading Biases*

-EUR, -GBP, -AUD, -JPY, -CHF
neutral NZD
mildly +USD (but not vs JPY), +CAD

*Today’s Ideas*

1. Sell AUDNZD at 1.0928, Stop at 1.0958, Target 1.0908
2. Sell EURJPY at 132.15, Stop 132.45, Target 131.95
3. Sell EURUSD at 1.1744, Stop at 1.1774, Target 1.1724
4. Sell AUDCHF at .7836, Stop at .7866, Target .7816

Cancel ALL pending orders by 3:30PM NY / 19:30 GMT / 5:30AM AEST
Close ALL open day trades by 4PM NY / 20 GMT / 6AM AEST

Today’s Trading Plan – EURGBP, EURJPY, USDCAD

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading higher against all of the major currencies except for the euro which is back above 1.18 thanks to stronger than expected German labor data. The resilience of the greenback is surprising after yesterday’s sharp reversal in Treasury yields but at the end of the day the moves are modest and a reflection of shifting interest rate expectations in Australia, New Zealand and the U.K. AUD and NZD are lower today while CAD manages to extend its gains. Sterling on the other hand is the worst performer as a surprise downward revision to GDP casts doubt on the Bank of England’s rosy, hawkish outlook for the economy. US personal income, spending, the PCE deflator and Chicago PMI are due for release this morning along with the revisions to the September University of Michigan consumer sentiment index. At the same time from Canada, July GDP numbers are on tap.

*The MAIN THEMES I see today are*

+EUR
-GBP
-AUD
-NZD
+CAD

*Trading Biases*

+EUR, +CHF, +CAD
-GBP
mildly -NZD, -AUD,
NEUTRAL USD, JPY

*Today’s Ideas*

1. Buy EURGBP at market now .8826, Stop at .8796, Target .8846
2. Buy EURJPY at 132.82, Stop at 132.52, Target 133.00
3. Sold USDCAD again at 1.2420, Stop 1.2450, Target 1.2400

Cancel ALL pending orders by 3:30PM NY / 19:30 GMT / 5:30AM AEST
Close ALL open day trades by 4PM NY / 20 GMT / 6AM AEST