Trade Like a Traveler Not A Tourist – Part 3

Boris Schlossberg

Lesson 3

Any foodie knows that Singapore is an oasis of flavor. The wild mix of cultures on the island created a very rich culinary history of Chinese, Indian, Malay and Indonesian dishes. Every mall has wonderful food court where hawkers ply their trades and offer a dazzling array of Asian delicacies and signatures meals.

However, if you are boy from New York with a distinctly Western palette that doesn’t run much beyond salads, burgers and shrimp – the wide array of flavors and seasonings can be overwhelming for both your nose and your stomach. So it is really important to ask about each dish and sample sparingly until you find what you like and more importantly can tolerate.

Trading is a very similar proposition. You may be offered the greatest long term system known to man, but if you can’t hold a position for more than a hour, it will never work for you. Conversely intra day setups that require nimble reaction time will be totally useless for someone who is uncomfortable trading in and out of the market ten times per day.

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Most importantly, just as with food, it is very important to understand your ingredients, in trading it is really important to understand the setup. If you don’t understand something it is always much better to pass up the opportunity. Both your stomach and your trading account will thank you for it.

Trade Like a Traveler Not A Tourist – Part 2

Boris Schlossberg

This is Part Two of Three Part Series

Lesson two from my trip to Singapore boils down to – don’t sweat the small things. Singapore is notorious for its tough traffic jams. Despite the fact that it can cost up to 200,000 USD to buy a regular sedan, the country is chuck full of cars and rush hour commute can be a nightmare.

I had a seminar scheduled in the financial district, so I took a cab with plenty of time to spare. But about three minutes into our journey I remembered that I forgot a small piece of equipment in my hotel room. Just as I asked the driver to turn back we came to a crushing halt as traffic stood still.

Now I had to make a quick decision. Go back to the hotel and risk being late for my seminar, or plow on without my remote. The remote was a nice to have but not a got to have part of my show. It was much more important to make the meeting on time since we were trading live and I had a limited amount of time to set up the presentation. I told the driver to keep going, which turned out be a smart choice as the delay was caused by an accident that held us up for more than half an hour. By giving myself plenty of time and by keeping my focus on what was important, I made the seminar on time, we had a great session trading the NFPs live and banked pips on all our positions.

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When we are trading we often get sidelined with minor distractions. For example, I have seen countless traders become obsessed with getting just the right price for the position at the expense of either missing a trade or missing their profit target and turning a winner into a loser. When we are trading we need to keep the focus on the goal and that goal is to anticipate direction properly and make sure you protect your profit once the trade goes your way. We don’t get paid on woudda coudda shoudda – the three most popular words of losing traders. So don’t worry about making that last perfect pip – care much more about making money.

In Trading Winning Means Nothing – Part 2

Boris Schlossberg

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How does the statement go? Fool me once shame on you, fool me twice shame on me. That idiom was written for trading. In no other discipline in life are we fooled more often than the market which can lay the best designed plans to waste in a matter of minutes. Which is why in trading guarding against loss is much more important that planning for gain.

This week was just another in a long series of examples of markets flipping sides faster than a Chicago politician. We started out the morning with EUR/USD making fresh three year highs and ended the day with the currency at session lows. Every trade that looked great in morning was looking miserable by close of New York markets.

If you were long risk you were wrong and the simplest, easiest wisest thing to do was to cut your losses and stop out. Unfortunately for traders a stop is never easy and never simple. We hate the finality of losing money so we do everything in our power to avoid the loss. One of the most common delay tactics that I hear over and over again is “ I keep a mental stop.” To which my response is always -’Really? Do you keep a mental FX account as well?” While your stop may be mental and exists only in the reality of your mind your money is very real and it will not be protected with a “mental” stop.

If having a stop is near impossible then you need to do the next best thing. You need to trade small. How small? Cash on cash or less. (That means if you have 10,000 in your account each trade must not be larger than 1 mini lot). Unfortunately in FX where 100 to 1 leverage is common, such positioning seems laughably small. But its no laughing matter. Currencies rarely move more than 10% in one direction. At cash on cash you can survive a very bad trade and still remain in the game. At even a “modest” lever factor of 10:1 you are totally wiped out.

Trading small covers up a lot of sins and allows you the luxury of time to adjust your trades, but few traders in FX even consider this tactic.

Next week I’ll discuss how small size and trade adjustment could help you turn losers into winners – UP TO A POINT. Stay tuned.

Be Less Dumb – Avoiding Trading Traps Part 2

Boris Schlossberg

In the second part of my series I take a look at the common market traps that befall us all

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Known event risk

Someone once quipped that dying was easy – comedy was hard. Sometimes I feel that the same can be said about trading. Markets are notoriously fickle. In FX where the news never stops we can step on a landmine at any given point in time. An unexpected sovereign downgrade, natural disaster, political scandal. You name it – during the course of a day anything can happen and quickly wreak havoc with your trading position.

My point is that there are plenty of unknown surprises in the market that can trip us up, so we do not need to endanger ourselves further by stepping in front of known event risks. I run a variety of systems on my accounts but I try to turn them off in front of key events. If you are running negative risk reward strategies it is always better to give up the profit than to take on an unnecessary loss.

Event Risks That I Avoid

NFPs This is the stupidest trade you can make. One time I calculated that consensus view on NFPs was off by more than 20K 16 out of 20 times. The market is wrong 80% of the time. In short nobody knows anything. Trying to handicap the US labor number is a suckers game. Worse trying to handicap the immediate market reaction to the US labor data is an even bigger gamble. It is generally much better to wait, process the data and then trade off the reaction.

The rule about avoiding the NFPs extends to the labor data of other countries. especially the commodity block where small populations can create massive divergence from expectations and destroy you if you are on the wrong side of the trade.

Central Bank Meetings Central banks ARE the FX market. What they say can reverberate for days, weeks and sometimes months. It is much better to process their message and then react. The market will not adjust instantly. If the central bank decides to change course the market will change with it. Witness the BOJ and USD/JPY. If you run a system in front of central bank meeting you are begging to be stopped out. Totally unnecessary trap.

G-20 Meetings, Eco Fin Meeting, Endless EU Rescue Meetings What would politicians do without meetings? They probably couldn’t exist. Most political meetings are a waste of time. A lot of these meetings are routine – but if they are meeting over the weekend you can bet that s* is about to hit the fan. A good rule of thumb to use – if you see Angela Merkel’s face on the front page of the business section, avoid taking a position before she speaks.

I’ll conclude this week piece with a quute from last week – the motto for success in our business is Be Less Dumb.

The key to making money from the markets does not lie developing in a newfangled system every week. It is much more dependent on avoiding the common traps that occur day and day out. The markets will naturally force us to make plenty of mistakes, no need to add to the problem by making unnecessary ones.

This of it this way. You can probably run across a multi lane highway in the middle of the night and avoid getting hit by a Mack truck – but why the f- would you want to?

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Be Less Dumb- Avoiding Trading Traps Part 1

Boris Schlossberg

The irony of the trading life is that we spend 99% of our time trying to figure out how to win instead of making sure that we don’t lose. The fact of the matter is that most traders will benefit far more from learning how to avoid the common traps in the market than from refining yet another derivative of a derivative of a derivative strategy.

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There are three common traps in FX in my opinion and each is destructive in its own way not because of the intrinsic damage that it does, but because of what we do NEXT. Namely, every time we fall into one of these traps we lose our psychological equilibrium and do massive damage to the account as we deviate from our business plan ( see my column last week).

Personal Traps

Market Traps

Dealer Traps.

This week I will address personal traps that ensnare us all.

Excessive leverage

The easiest quickest and most certain way to lose money in FX is to overlever your account and have a margin call automatically stop you out. In order to properly manage your leverage you need to understand the concept of capacity – that is the maximum notional amount of all open trades that you may carry in the market at any given time. If you strategy calls for possible 5 opens trades at once you cannot have each trade at 10:1 lever factor because you will run out of usable margin. This is the easiest mistake to correct and yet the most common one that we all make. Generally the rule of thumb for US based traders where max leverage is 50:1 is that your capacity should not exceed 20:1. That means that if you are going to have up to 5 trades open at once – each trade cannot exceed 4:1.

Order entry mistakes

We all hit sell when we mean buy and then nurse the trade hoping that it will become profitable. Deadly mistake. Hit the wrong button? Get the F-out!. Don’t think, do. The 5 or 10 pips that you will lose will be a pittance compared to the money you will lose by holding on to a trade.

But perhaps the worst mistake we make is to forget to attach a stop to every order. It is IMPERATIVE that you check all your floating trades and make sure that each has a stop behind it.

Orders over the weekend

If you are a long term trader who holds positions with 300-500 point stops then this trap is not for you. But if you primarily day trade then holding positions over the week-end can be like stepping on landmine. All you need is just a couple of weekends during the year to wide gap open against you and your account will feel the pain. Bottom line if you daytrade. Get flat for the weekend.

As one of my traders in our chat room said today – the motto for success in our business is Be Less Dumb.

The key to making money from the markets does not lie in a newfangled system. It is much dependent on avoiding the common traps.

Like to trade the EUR/USD? So do we!

At BKForex, a large part of our trading is short term and the EUR/USD is one our favorite currency pairs to trade.

The EUR/USD is the world’s most actively traded currency pair and for many forex traders, this activity provides opportunity.

Sign up to receive our FREE 17 Page EUR/USD Trading Strategy


*By signing up for this strategy you agree to receiving promotional emails from BKForex.com