Most mornings I’m sat at my desk at 7am, when markets open.

And, as a trader, I feel a strong draw to this opening few minutes – that I should be in the market, acting.

We traders never know WHAT the markets will do … or WHEN. Which is why market open is so attractive – because it gives us an insight on timing. We might not know what’ll happen – but we can be pretty confident that something will happen at exactly 7am each morning.

So, if the timing is done for us – that’s 50% of our trading puzzle worked out. All that remains is for us to take a punt on which way the market’ll go.

I don’t mean to sound flippant – this kind of window of opportunity is what trading is all about – we just need to tip the scales into our favour, get our risk-reward right, manage our exit … and bingo!

So, what happens when markets open?

These days, many brokers give overnight prices on indices. This means that they work out a price estimate while markets are closed, based on the futures market.

However, there are still a few brokers who don’t do this – and these are where we see market ‘gaps’ as the index finds is price level when it reopens.

Here’s a pretty typical overnight pattern on the FTSE …

The market closes on the Monday night at around 7097 … and reopens at 7am on Tuesday morning 17 points lower, at 7080.

Now let’s do a little refresher on gaps and gap trading …

Traders have a few sayings about gaps:

‘the market hates a vacuum’ … ‘the market will fill a gap’ … or ‘close a window’ …

The gist is that where we have a gap, there’s also an expectation that the market will come back and ‘fill’ that area of white space on the chart. (You can see it clearly happening on the example above.)

Sounds great, doesn’t it? Just open a trade each morning to ‘fill’ the gap on the FTSE?

But, of course, it’s not that simple.

The presence of a gap indicates momentum in the market, and it’s not always the wisest thing to stand in the way of that momentum. Yes, the gap may be filled, but it could take too long, and move too far against you in the meantime. (See more about gap trading here.)

So, how can we take advantage of that opening bell momentum – without getting stampeded by it?

Let’s look at what happens in the first few seconds, as traders pile through the doors. Here’s a 1 minute chart of the FTSE open …

As you can see, there’s a fair bit of volatility in that first minute. If you got in too soon to try to close that gap, you’d have needed a wide stop to avoid being knocked out by that activity (remember – these candles only represent a few points, so the price could well be bouncing about wildly within its limits during that first minute).

If you’re trading these market-open gaps, you’re looking for a handful of points in profit (plus, the cost of the spread makes up a big percentage of that move), so every point matters in these trades – you can’t afford to get in at the wrong level.

So, what if we wait 5 minutes for the stampede to die down?

Here’s the same open on a 5-minute chart …

Adding the 5 minute candle to your gap trading strategy

As well as keeping us out of trouble, waiting that extra 5 minutes can give us another profit opportunity. Where the market has made a big move in that first 5 minutes, further widening the gap, we have a few options:

1. Enter the trade at that better price, so making more points profit.
2. Setting an order to open the trade when it retraces to market open price.
3. A combination of these: by entering the trade immediately, but closing out half of the position at market open price.

It’s noticeable that, even in scenarios where the opening gap isn’t filled, the price will retrace to the open price before shooting off …

Opening bell strategy rules

If you’re tempted to try your hand at trading the opening bell, there are a few important points to remember:

• The gap needs to be big enough for you to collect a reasonable profit, bearing in mind that on the FTSE, you’ll be paying around 1 point on spread costs. Don’t be tempted to go chasing after ‘fills’ of less than 10 points – it’s not worth the cost, risk and effort.

• Likewise, if the gap is too big – beware. This could be a runaway gap (see below).

• Keep your risk-reward tight – yes, gaps will often fill, but they also often won’t (or not in the way you want them to). So you’ll need a tight stop so you stem losses fast if the market doesn’t behave.

• If the gap has already filled (or reduced too much) in that first few minutes – the opportunity just wasn’t there, so sit out.

• If there’s a clear news story or event that’s driven a market gap that morning – this could be what’s known as a ‘breakaway’ or ‘runaway’ gap. This isn’t your common-garden gap, and you should beware these events. Volatility may well not calm down within the first few minutes, so you could experience gapping in your trade (i.e. getting stopped out of a losing trade at a worse price than you expected).

• Remember that trading the opening gap means standing directly in opposition to market momentum – this isn’t always going to be a comfortable place to be.

I’d be really interested to hear your methods … your successes … and what you’ve learned trading opening patterns. These systems are very enticing to traders, but need a steady hand …

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The post A strategy for gap trading the opening bell appeared first on Traders Bulletin | Free Trading Systems.

There are some weird predictors for election results, and for just about anything else you can speculate on …

We’ve had Paul the octopus for the World Cup, but previous US election prediction methods have included … how deep the candidates’ voices are … how tall they are … whether the Lakers play in the NBA finals … did the Oscars ‘best picture’ have a happy ending …?

What’s probably a more reliable indicator of the election outcome (or at least what the market thinks the outcome will be) can be seen in this chart …

It’s the USD against the Mexican Peso.

The Peso has been a canary in the cage for this election. Of course, there’s the infamous wall that Trump is promising along the Mexican border, and Mexico is the US’s third largest trade partner, so the Mexican economy could be hit hard by a Trump win.

We can clearly see on the chart above Clinton’s health scare in mid-September, followed by Trump’s disastrous week at the end of September/beginning October, with revelations of groping, tax avoidance, and a series of 3am rants on Twitter. Where Trump gains in strength, the dollar strengthens against the Peso, where Clinton gains, the dollar weakens against the Peso.

But what’s more interesting is the turnaround in the fortune of the Peso this month that you can see on the first chart I showed you – it’s losing ground again against the Dollar, as Trump pulls back in the polls.

What the charts can – and can’t … tell us …

Of course, if we learned anything from the UK referendum, it’s that market makers, media, and politicians, in their ivory metropolitan towers, have no idea about how real people are going to vote.

So, besides reaching for a tin hat … how should we prepare ourselves for next week’s events?

The expectation is that a Clinton move would be the ‘risk-on’ move – pushing up the value of shares and the dollar.

US stock markets generally experience a surge after an election, as the uncertainty comes to an end. However, until the last few days, I would have said that a Clinton win might already have been factored into the markets. But they’re looking a little rattled right now – and money is flowing into safe havens like gold, silver and the Japanese Yen.

By contrast, a Trump win would be the ‘risk-off’ move – sell the dollar, sell indices, buy safe havens.

The conclusion is that a Clinton victory could give dollar and indices a little boost. While a Trump victory could see widespread volatility and falls across global markets. It’s the status quo (which market love) versus uncertainty (which markets hate).

So, what should we do?

As traders, the safest thing we can do is protect ourselves against the possibility of a Trump victory and against wild volatility.

If you have positions that could get their stops hit by big peaks and troughs as election results come out, it would be wise to close those out. Yes, you can stay in the market and ‘see what happens’ – but be aware that this is a high-risk strategy.

If you don’t want to close out short-term positions, or if you have long-term positions and buy-and-hold investments, you can look to hedge them.

The obvious hedge against a Trump victory would be gold. Or you could look at VIX futures.

The VIX – often called the ‘fear index’ – is a pretty good measure of market volatility. The chart below shows how it behaved over the UK referendum, and how it’s building up right now …

Many brokers are already putting up their margin requirements ahead of the election, so if you’re staying the markets, make sure your accounts are well funded to cover this, your stops aren’t vulnerable, and you have the stomach for some volatility.

Personally, I’ll be battening down the hatches, and stacking tins of beans in the bunker …

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2016 is the gift that just keeps giving …

We’ve had terror attacks, the zika virus, a stream of celebrity deaths, from Terry Wogan to David Bowie, political and economic turmoil following the UK referendum, a shock victory for Trump in the US elections …

… and don’t think that just because we’re on the home straight to Christmas that this is all over …

Next in the calendar is the Italian referendum on 4 December.

Staking your career on the outcome of a referendum didn’t go too well for David Cameron, but Italian prime minister Matteo Renzi is bullish, saying he’ll resign if he doesn’t get the result he wants.

According to the polls, he’s on track to lose the referendum – but, if we take a poll of recent polls, then that would suggest that he’s going to win.

But, if Renzi does lose, it leaves Italy open to the populist right-wing 5 Star movement … which could then lead to Italy leaving the European Union.

An Italian exit would really shake things up.

And, if 2016 has taught us anything, it’s that the markets are useless at predicting outcomes.

So, what’s the sensible way to trade the news through these kinds of market-moving events?

The grown-up way to trade the news

Last week, many people (myself included) were talking about hedging a Trump victory. The popular choices were Gold, the Japanese Yen, VIX futures …

And this week, there’s no shortage of “I told you so”s – people who said gold would go up … and, wouldn’t you believe it … up it went.

Let’s take a look at one of those charts. Here’s Gold …

These kinds of sudden market moves are notoriously difficult to trade. Depending on how you timed your entry and your exit, and where you placed your stop … it would have been tough to make a profit, and extremely easy to lose a good whack of money on these speculations.

Which is why the stream of bragging “I told you so” emails I’ve received this week has irked a little.

The wild volatility of these kinds of markets can easily shake us out at our stop level, just as the big move gets going …

Or it can rebound so fast that we miss the big move altogether …

And the chances of getting in or out at the levels we’ve asked for are pretty slim.

Yes, this kind of trading may be exciting. But it’s not serious investment.

How to safely navigate ‘events’ and trade the news safely

Profit hunters are drawn to news events like moths to flames.

News stories bring with them big spikes on charts, and where we see big moves, there’s money to be made!

But be careful, because there are extra risks attached to trading the news …

1. Many brokers will increase their spreads at volatile times. This increases your costs, and makes it harder for your trade to profit.

2. Prices don’t move in straight lines. What looks like a lovely big green 5 minute candle on our charts, could have seen the price yo-yo wildly up and down during that time period. This kind of volatility can easily knock out stops, just before the ‘big move’ we were after happens.

3. Slippage is common in volatile markets. Let’s say you’ve asked for your order to be filled at X level, but your broker doesn’t open your trade until way past that level, so you’re buying or selling at a considerably worse price than you’d requested.

I’m not saying it’s impossible to profit from news events – but the added risks make it very difficult, especially if you’re looking for relatively short timeframes, where the cost of a spread takes up a big chunk of your profits, and stops are tighter, and entry & exit levels are key.

So, what’s the solution?

As we’ve seen, the three major risks above are most keenly felt if you’re short-term trading.

Which is why my advice for short-term trading over news events is simple – don’t do it.

Heikin Ashi Mountain isn’t a very short-term strategy – it trades just once a day, following daily charts. But I still advised traders to sit out from Friday to Thursday. It might be the boring, conservative option, but it’s the prudent one.

However – just out of curiosity – I carried on trading Heikin Ashi Mountain over the elections on a demo account.

The November results say it all …

1–10 November Results:
Heikin Ashi Mountain live account (no trading between 4-8Nov): +£1,560.20
Heikin Ashi Mountain demo account (continued trading 4-8Nov): +£547.74

Of course, one example like this isn’t really enough to prove a point. There will have been people who got lucky over the election period, and did nicely. I think one user put it better than I can:

I closed out all positions, once I wouldn’t have but this year I’ve (finally) come to see what I’ve been told many times over… there will always be other opportunities.

If you’re holding long-term positions over a key news announcement or events, then your risk factors are different.

If your stops and targets are wide enough, then the risk of getting spiked out is lower, and the effects of slippage are lessened.

Long term positions are generally looking for hundreds of points, rather than small gains, so a hike in spread costs will barely be noticed.

In conclusion, I’d always advise caution trading around news events. And be wary of those telling you that – if you’d just listened to their advice – you could have made a killing over the US elections.

The markets offer us plenty of great profit opportunities, so there’s no need to go hunting in these high-risk periods.

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The post How to trade the news appeared first on Traders Bulletin | Free Trading Systems.

Feedback loops are everywhere.

In the natural world … the social sphere … and the financial markets …

Some are healthy, and some are seriously damaging if left to run unchecked.

They govern plants growing, dying, adding nutrients to the soil, allowing more plants to grow …

They regulate population growth, where a boom in the rabbit population might cause a rise in the population of foxes who feed on them … which then brings down the number of rabbits … reducing the number of predators … and so on.

In the natural world, feedback loops are often self-regulating – this is called a negative feedback loop that stabilizes a system.

But a positive feedback loop is one that drives itself further toward an extreme – like melting sea ice causing less sunlight to be reflected back into space, or human population growth …

There’s been a lot of talk over the last week about the Trump Facebook phenomenon.

And this is a prime example of the immense power of feedback loops …

Across the world, people post ‘news’ stories on Facebook … which are spread by their like-minded Facebook friends … and so these stories become very widely read.  Hence we end up with a situation where otherwise sane people are speculating about whether Hillary Clinton performs satanic rituals, cooking up blood, sperm and breastmilk for dinner (apologies to anyone who’s eating lunch).

We’re all guilty of it … sharing our thoughts with our friends, safe in the knowledge they’ll agree with us … preaching to the converted … so we can all sit around tutting at the state of the world.

Of course, there’s nothing wrong with having a rant with our friends about the things we don’t like … but mass communication has become so easy and user-friendly, that this kind of information spreads fast … and wide.

In the political world, it can mean that misinformation is ‘leaked’ about an opponent.

In the financial world, it means that a few people talking down an instrument, or selling, can quickly affect prices, as everyone else rushes to sell before it’s too late.

The result is a global market where instruments are more closely correlated than ever before, and where the boom/bust cycle becomes more and more pronounced.

It’s not a new phenomenon …

George Soros promoted a market theory called ‘reflexivity’, which is all about positive feedback fueling market sentiment.

It’s a circular system, where market fundamentals might drive prices down … traders sell based on those fundamentals, thus driving prices down … the traders’ actions are confirming the fundamentals, giving us a self-sustaining system that can drive prices straight into a market crash.

So, what does that mean to our trading accounts?

We can’t rid the markets of reflexivity – it’s caused by the fact that it’s highly emotional humans, rather than rational robots who actually drive prices.

So, anyone trying to make rational sense of the markets – and who puts their money on the line based on those rational arguments … is very likely to lose that money.

Soros tells us that the shrewd investor can take advantage of reflexivity by following the trend until it reaches its ‘inflection point’, where the bubble bursts.

The problem is that an ‘inflection point’ is impossible to judge – until it’s already happened. Trying to judge market tops and bottoms is impossible to do – sure, people can get lucky occasionally, but no one knows where these turning points will be.

But what’s more interesting about reflexivity is what it tells us about trends … they can keep on going way beyond where the underlying ‘value’ tells us the price should turn.

So we should ignore the logic that tells us markets have peaked … and just follow what the charts tell us. It’s the old adage: trade what you see, not what you think.

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The post These dodgy feedback loops are taking over your trading account appeared first on Traders Bulletin | Free Trading Systems.

Everything you wanted to know about bond markets, and why interest rates affect them … in 90 seconds!

Bond markets explained - video content
What are bonds?
And how do interest rates affect them?
Normally when we think of a loan, we think of the bank lending us money.
But in the case of a bond, you are lending money to the government or a corporation.
In return, you get your bond, with a coupon. This is the percentage of interest you’ll get back on your loan.
For example, if you own a £100 bond, with a coupon of 5%, you’ll be paid £5 per year for owning the bond.
Plus, when that bond expires, you’ll get your £100 value back.
So what happens when interest rates change?
I bought this bond for £100 last year with a 4% coupon. Will you buy it for £100?
No way! Interest rates have gone up. I can get a £100 bond with a 6% coupon now. I’ll give you £80 for it.
So ...
If interest rates go up ....Bond prices will come down.

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The post [VIDEO] Bond markets and interest rates explained appeared first on Traders Bulletin | Free Trading Systems.

Last weekend, my youngest decided to make a giant Crunchie bar. He’d seen how to do it on Youtube, and determinedly cooked up a diabetic feast of golden syrup, sugar and bicarbonate of soda. The bubbling potion was then left ‘fizzing’ on the side in the kitchen to set.

Cue … older brother walks by … sees a bubbling, sugary goo … and does what any sane 11-year-old would do … sticks in a spoon for a taste …

Immediately the entire honeycomb mixture collapsed flat, and he was caught red-handed (and sticky fingered) trying to hide the evidence.

The art of set and forget

Sometimes things need to be left to mature … and fiddling with them is the worst thing we can do. And that goes for trades as well as the non-crystalline structure of honeycomb.

Yet, at other times, a completely hands-off approach can leave us vulnerable in the market, when we should be acting to protect our funds and our profits.

How do we know when to fiddle … and when to set and forget?

The first question to ask if we want to work out whether our trades need ‘managing’ is … why are we interfering in our trades?

Generally, it’s likely to be one of the following concerns:

• Worries about losses getting bigger
• Worries about giving back profits
• Worries about upcoming news events or data announcements
• Taking on too much risk
• Trading in markets that are too volatile

All these are genuine, sensible concerns for anyone who has money sitting at risk in the market … and all can be addressed.

Taking on too much risk

If your trades are causing you stress, then it’s very likely that you are staking too large for your risk appetite. There is no fixed risk profile that you should be trading with – everyone has a different approach to risk, and a different appetite for it. If others are risking the 2% per trade, but you prefer to risk 1/2% – that’s fine.

Don’t try to cut risk by simply tightening stops. If the stops your strategy requires are too wide for your comfort, then perhaps it’s the wrong method for you, or perhaps you need to be trading on a smaller, less volatile market.

For example, you may be able to trade comfortably on Eurostoxx (which has a 45-point daily range) with a 50-point stop. But try the same strategy on Wall St (which has a 150-point daily range) – and you’ll very quickly get your stop knocked out by the natural scale and volatility of the market.

Smaller, less volatile markets allow us to trade with lower stop distances – and hence (if you’re trading with minimum stake sizes), you can keep your risk nice and small.

Upcoming news events or data announcements

Yes, life is short … but it’s not so short that we need to trade through the news. There will be other profitable opportunities out there, so we don’t need to take on the stress and the risk of highly volatile periods (unless, of course, you enjoy that kind of thing!)

Worries about giving back profits

In general, traders are guiltier of fiddling with their winning trades than their losing trades. Human nature leads us to “sit” on our losses – ever hopeful that they’ll come good. While open profits are just too tempting to snatch off the table.

My Heikin Ashi Mountain traders will be very familiar with this feeling – and I’ve mused on this dilemma at length with them. And I’ve come to accept that my strict “no touch” rules aren’t for everyone.

While it may mean that we end up with a smaller profit come year end, there’s a lot to be said for cashing in a profit of £500 as you go into the weekend!

AS LONG AS this doesn’t push you out of long-term profit, and over into a loss over the long term. The only way to monitor this is to track your results, and see where the best place to take profits is – both in terms of the bottom line, and your comfort levels.

Worries about losses getting out of hand

Traders in general are more prone to letting losses run than cutting them short, but it is important to give our trades room to breathe.

Knowing where to cut losses comes down to two important factors:

1. What is the expected movement on this instrument? Is the pullback on my losing trade just part of normal play?

2. Have events or price moves negated the signal that got me into this trade in the first place?

The first question can be answered by looking at the average range on that market. The easiest way to do this is to use the ATR indicator – this measures the average price range over a set number of candles (14 is the norm) …

Knowing what the ATR is for the daily chart of the instrument you’re trading is a very valuable little gem of information!

Add to this information the amount of time you expect your trade to be open for – are you looking at several weeks … several hours … or somewhere in between?

Now you can use this knowledge to judge whether the distance the market has moved against you is normal ebb and flow of prices, or a more decisive move.

The second question really depends on what your entry signal was, and what you’re expecting to happen. But, these are definitely criteria that can be added to your trading rules – so there’s no excuse for fiddling. This should all be part of your strategy.

The crunch

I’m a big fan of hands-off, ‘set and forget’ trading methods. Not only does it free us up from the temptation to fiddle with our trades … it also means we can get on with other things – I wouldn’t like to add up the hours I’ve spent ‘watching’ my trades. There has to be no pastime more fruitless!

But if the temptation to fiddle with your trades is getting the better of you – it probably suggests that something is missing from your trading rules, or simply that you’re trading too big. Remember the reason that most of us are driven to trading – we’re looking for a better way to make money, that frees us from the daily stresses and grind of a 9–5. So, if trading is adding stress, and having you tensed over your computer keyboard … might be time to rethink …

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The post The surprising truth about set and forget trading appeared first on Traders Bulletin | Free Trading Systems.

Wondering what all the fuss is about? Here’s what traders need to know about the Italian referendum …

What are they voting on?

They’re voting on pretty narrow constitutional changes, which may not seem like a big deal.

Here’s the question (warning: it’s a little dry):

“Do you approve the text of the constitutional law concerning measures to end equal powers for the upper and lower houses of parliament, the reduction of the number of parliamentarians, the containment of costs in running political institutions, the abolition of (public advisory body) Cnel and the amendment of article five of the second part of the Constitution, approved by parliament and published in the official Gazette number 88 on April 15, 2016.”

However, as we know too well, the question on the referendum paper is only a fraction of what people are actually voting about. In Italy, this comes down to a vote of confidence in the PM, Matteo Renzi – he represents a modernization of Italy, both politically and economically. By contrast, a ‘no’ vote is support for the populist ‘old guard’.

What’s the big deal?

This is Europe’s most important referendum since … the last one in June (you probably remember that one). And for the stability of the EU, it could be even more important.

If the ‘no’ side win, Renzi has promised to resign. This could leave a power vacuum, into which the populist Five Star Movement could swing. Where this would leave Italy’s bailout plan is anyone’s guess – but Italy’s banks are in dreadful shape and very vulnerable to collapse.

Who’s going to win?

The most recent polls show the ‘no’ camp in the lead by 53.5% to 46.5%. But 2016 hasn’t been a great year for pollsters …

When will we know the result?

Voting closes at 11pm local time on Sunday, at which point they’ll announce the exit polls. Counting starts immediately, and they’ll release results of that count every 30 minutes, so if the result is not close we could get a clear idea of the winner by midnight GMT. If it’s close, then the result will become clear in the early hours of the morning.

So, if ‘no’ wins, will the entire Italian banking sector go under on Monday morning?

The president could appoint a ‘caretaker’ PM, but it seems likely that fresh elections would have to be called next year. And this is where the euro-skeptic Five Star movement could gain power.

We’d have months of uncertainty ahead, and nervousness about the future of Italy in the EU, and the health of its banks.

What will it mean for the markets?

The main fear is the banks – and repercussions would be felt through the entire European banking sector.

Italian bonds could also see a sell-off, although the ECB are likely to step in with an emergency bond-buying spree.

All in all, there’s no reason for the bottom to fall out of Europe in the next week … but that doesn’t mean that markets can’t be sent into a short-term tailspin of panic.

Spread-bet firms are already hiking their margin requirements – a sure sign that they’re expecting turbulence.

As I said last week, life isn’t so short that we need to trade through big market-moving news events. So, going into the weekend would be a good time to take profits, close out short-term positions and consider hedging any vulnerable long-term positions.

And if you choose to stay in the markets, be aware of the increased risk to your money.

The post The Italian referendum explained appeared first on Traders Bulletin | Free Trading Systems.

“Everyone at school has a better mobile phone that I do …. They all get more pocket money …. And if I don’t get Beats headphones for Christmas, my life won’t be worth living …”

That’s how my 11-year-old measures himself against his contemporaries.

My brother and sister-in-law are off to the Maldives for a luxury 5-star Christmas break.

My wife’s ex-boyfriend has a better bike that I do, and can cycle further and faster.

I’m not sure we ever grow out of comparing ourselves to other people, and holding up unreliable measuring sticks of our success.

It’s easy to gauge our success, our performance and our state of mind all wrong if we’re using the wrong measures.

Traders very often judge their trading success on the profits sitting in their accounts at the end of the month. But there’s so much more to measure … and to be happy about …

6 smarter ways to measure trading success

Don’t get me wrong – successful trading has to be about making a profit … but the P&L figure for the end of the week … month … or year … doesn’t really tell you anything about what your long-term trading success is.

There are some far better yardsticks we can use – these’ll tell you whether your trading is on the right lines … whether it’s improving … and where your weaknesses are.

If you’re using the Trader’s Bulletin trade journal, then it’s simple to keep track of these figures. If you’re not, then it can be downloaded HERE.

1. Number of winning vs losing trades

There’s a general view that you’ll want to win more often than you lose – you’ll often hear traders tell you that ‘you only need to be right 50% of the time!’ – as if you’re betting on the toss of a coin. It’s actually quite hard to be right about trades 50% of the time – there’s a lot that can go wrong, and ways that you can be ‘right’ and still lose money through poor trade management.

There are many successful traders out there who’ll take lots of small losses and fewer bigger winners. What matters is how this figure balances with your average win/loss size (see number 2 below).

2. Average win size vs average loss size

I often bang on about how the 2:1 risk-reward principle should be viewed as an ‘aim’ rather than a ‘rule’.

Achieving double the reward on winners than the loss on losers is a tough call for any trading strategy to maintain – it’s certainly a lot harder than many trading gurus would have you believe.

However, if your losses are too big and keep wiping out all your gains –you’ve got a problem. This figure needs to be carefully balanced with your success rate (number 1, above) to achieve profitability.

3. Largest number of consecutive winners and losers

Take a look at when your winning streaks happen … and when losing streaks happen. What were the market conditions at the time?

This will give us a picture of which markets we’re good at trading, and which ones we should be wary of, or that our strategy just isn’t suited to. How can we protect ourselves against the poor market conditions, and maximize the benefits of the good conditions?

4. Worst draw-down periods

This would be the greatest fall off from an profit peak to a low point – i.e. how much profit we’ve given back to the market. It’s a good way of measuring the risks we’re taking.

Being profitable with small draw-downs means that risk-adjusted returns were probably good. Being profitable with huge draw-downs is a warning flag – you could be running too big a risk to achieve those profits.

Heikin Ashi Mountain traders are very familiar with this balancing act – how lower returns tend to give a smoother profit curve than high returns. And how this is often a compromise worth making if you want to achieve long-term trading success.

5. Holding time

Do you know how long you hold a trade, on average?

Do you keep a total of how much you’re paying in overnight costs to your broker?

When you keep track of this data, you may be genuinely surprised. And it comes in really handy when you track exactly how long you hold your winners, vs your losers …

This is an interesting one, and will give some clear info about whether you’re holding on to trades for too long or not long enough.

Do the wins tend to come quickly, while the losers are dragged out? This tells us that we should be cutting losses faster. Or are my losses the trades we get out of fast? Perhaps we should be giving them a bit more time to come to fruition…

6. Has it been a pleasure of a pain?

Most of us turn to trading the markets because we’re looking for an income that frees us from the 9–5 grind, while giving us the time and the money to do the things we care about.

Some trading methods might give us a fantastic end of year profit … but what have they cost us? Have we been tied to our computer screens for hours on end? Have we endured stressful ups and downs?

What really measures the success of your trading at the end of each month?

By tracking all of these pieces of data, you can see where your trading performance is growing, and even if you’re going through a rough patch, you can see where things are going right … where they’re going wrong … and how to fix them.

The post 6 smarter ways to measure trading success appeared first on Traders Bulletin | Free Trading Systems.

Oxford Dictionary Word of the Year for 2016 is ‘post-truth’. I didn’t think things could get worse than ‘emojii’ last year … but the ‘post-truth’ philosophy that we can advance through covering up facts, and disseminating rumours is a very depressing one.

Sure, Christmas is a traditional time of year for telling a few fibs … “No, the turkey’s not dry at all” … “This Minions tie will really impress my colleagues at work” … and the classic, “Wow, Santa must have been really thirsty on Christmas Eve to drink all that sherry” …!

But, with a few seasonal exceptions, lies, fibs and half-truths may get us out of a short-term fix, but generally do us little good in the long-term …

Which is why, with Trader’s Bulletin, I always endeavor to tell it how it is – even if it’s not good!

If a strategy isn’t working – you’d want to know as soon as possible, so you can fix it, or move on.

If a strategy is going through a tough patch – it shouldn’t be anything to cover up – drawdowns happen to all of us, and as grown-up traders, we should be comfortable with that.

And, of course, when good trading systems are riding high, we all want to hear about it!

Unfortunately, the world of trading is full of half-truths and ‘massaged’ facts … losing trades that are cunningly hidden from results … trading methods that are perfected in hindsight … and – unfortunately, the most common crime I come across – trading ‘mentors’ who clearly don’t actually trade the methods they preach!

The trading ‘gurus’ are at it … but we can also fib to ourselves … about trades we ‘wouldn’t have taken’ … slipups that we erase from our trading histories …

It’s all too easy to do.

And I’ve spent years watching big companies do this to lure in investors.

That’s why I’ve been determined to do things differently. I publish all the results I achieve with my trading systems on the Trader’s Bulletin site, so you can see which are working, and which aren’t.

By being open and honest this way, we naturally filter out the duff systems, and hold on to the good trading systems.

And that’s exactly where we’re at right now!

If you head over to the Strategies I’m Using section of the website, you’ll find 6 systems listed … some have been there for years, some are relative newcomers … but I’m immensely proud of the performance my recommendations bring in …

Heikin Ashi Mountain

Only released this autumn, this once-a-day, set-and-forget system has created 82% returns since end January 2016, plus recent improvements to the system have smoothed out returns, meaning traders are able to reduce risk, while still bringing home the profits!

Last month Heikin Ashi Mountain took 22% in profits, so the outlook for 2017 is looking good …

HAV Trading

This veteran trading product, with a pedigree going back to 2000, continues to perform for its traders. This method only takes a few minutes once a week to manage, and in 2015, it made £9,165.89 … and in 2016 (to date) it has made £7,626.37 …

Here’s a screenshot of my account this morning …

Rainbow’s End

Super low-risk … fun … and over the past 20 months it’s brought in an average of £1000+ in profits each month … and £11,304 already this year.

This mind-blowingly successful little trick is about to get even easier to use … watch out for exciting developments on this gem!

PIE Trading

As far as low-effort, long-term investment strategies go … this is hard to beat. PIE is a serious part of my trading portfolio.

In the New Year I’ll be launching a special forum exclusively for PIE users to share and chat about this system, so there couldn’t be a better time to get on board.

The Diff Code Transatlantic

The latest member of the Diff Code family – Diff Code Transatlantic is up 112% this year, plus there are new hedged markets on the way for Diff Code devotees.

Bread & Butter Trading

My much-loved Bread & Butter strategy continues to be in development as a fully automated trading system. Unfortunately, dotting the ‘i’s and crossing the ‘t’s is taking longer than I’d hoped – building in all the nuances of my own trading style has proved pretty complex – but this promises to be an absolute blinder!

Honest reviews

The beauty of honest, open presentation of results means that we really can nail down what’s genuinely working – and that’s what I hope you’ll find on Trader’s Bulletin.

If you’re using one of the systems above please go onto the website and report how you’re finding it. And if you’ve questions about these systems, again – come to the site, where you’ll get replies from myself or from other users. I think you’ll find the Trader’s Bulletin community a grown-up and supportive one.

[P.S. I know I bang on about this, but the best way to keep really accurate results is with a trading journal – there’s no hiding from the figures on a spreadsheet! CLICK HERE to download the FREE Trader’s Bulletin journal.]

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The post Good trading systems and where to find them in a post-truth world appeared first on Traders Bulletin | Free Trading Systems.

The festive season may be a time for giving … but don’t let that be you handing back profits to the markets.

Here’s my top-seven countdown for staying safe over while trading the holidays, when others are losing their heads and gorging on mince pies and illiquid markets …

Number #7

Lack of news and the general distraction of the population by present-giving and turkey-eating means that there’s usually very little to drive prices over Christmas. As a result, prices tend to develop tight trading ranges, so the kinds of moves you expect, may just not be there.

Of course, if an unexpected piece of news does come out, then its effects can be exaggerated …

Number #6

Over the Christmas period, markets will be closed on boxing day, some will close early on Christmas eve, some will be closed on the 27^th, some will close early on Friday 30^th, and remain closed on Monday 2^nd January …

All in all, it’s a bit of a jumble over the two long weekends of Christmas and New Year.

When markets are closed for longer than-usual sessions, they can open up again with a jolt as prices find their levels. If you have trades left open over the festive period, you’re leaving yourself open to this increased risk.

Number #5

And, of course, many professional traders will have closed up shop to spend Christmas in a sunny climate or on the ski slopes. With these large portfolios out of the game, there’s less buying and selling going on in the markets.

Buying and selling is the blood pumping round the markets – without it, market moves become more exaggerated, as buyers struggle to find sellers, and sellers struggle to find buyers.

Even over holidays, major indices and forex markets will always be able to find buyers and sellers, but any drop in liquidity means that big orders will have a larger than usual impact on prices. So, even if the holiday trading ranges are quite tight, prices can be pretty jumpy within those ranges.

Number #4

The effect of these thin market volumes, plus extended periods when markets are closed is that markets just won’t be behaving in the ways we expect.

Of course, there is no ‘normal’ in the markets, but your carefully devised trading rules are unlikely to have been developed with Christmas markets in mind. Therefore, the rules we follow for our trading just won’t be as reliable as usual.

Number #3

If you are trading, then by limiting your time in the market, you will be reducing your exposure to the risks above.

Number #2

When markets are volatile, investors’ prefrontal cortices come under pressure – this means that we make poorer decisions (all that sherry doesn’t help with the decision-making either).

Number #1

My number one tip for trading over the Christmas period is a little trick I copied from those big City traders …

It involves turning off your screens and taking a well-earned break.

My trading fund and my time are precious, and I don’t want to waste either on poor, unreliable market conditions. Especially at a time of year when there’s so much better to be doing!

And, if you really can’t go cold-turkey from your trading over the holidays … spend your time wisely by running through your trading records and checking that you’re in top performance ready to start again in January.

My long-term positions, will continue to run over the Christmas period, but today is the final day I’ll be opening any Heikin Ashi Mountain trades, winding down next week, and not coming back to live trading until 3 January. Diff Code trading will also cease until the second week of January, and I won’t be doing any day trading with Bread & Butter.

The one thing that can carry on unhindered over the holidays (except for the three days over Christmas when there’s no racing) is Rainbow’s End – if you’re not already picking up an extra income with this little trick, it could be the perfect Christmas gift to yourself (and it might just pay for all the Christmas shopping too!)

The post Trading the holidays – how to avoid Christmas regrets appeared first on Traders Bulletin | Free Trading Systems.

Last night, a tweet from Donald Trump wiped $1.2bn off the value of Toyota.

One of the strangest and most fascinating new ways to trade has just opened up … and I’d like to show you the weird 10-second window that reveals the secret potential of just how powerful trading Donald Trump’s twitter account can be …

You may think that Donald Trump is the best thing to happen to global politics … or perhaps you find rubbing glass into your eyeballs more comfortable than thinking of him as leader of the free world … either way, there are a few things which are undeniable …

There is an appetite for change in the US and in Europe, and along with that, an acceptance that uncertainty and risk are the price to pay for that change.

And then there’s Donald Trump’s twitter account …

The ultimate democratization of the press conference?

Or the infantile rantings of a sociopath?

The thought process behind these 140-character outbursts is very open to speculation, but let’s look at its effects …

First off, it’s a worry for anyone owning single stocks – especially in international firms who could find themselves in the line of fire of a Trumpeet.

But there are ways to take advantage of these outbursts.

I definitely wouldn’t advise that you try to act on the sentiment of Trump’s tweets – it’s unlikely that you’ll get in there fast enough. But there’s a clear method to be seen here – buy into the short-term price dips caused by these temporary sell-offs – profiting on the recovery.

Trump’s tweets bring an instant panic, followed by rationalizations … could he really cancel the F-35 order? Does he really mean it or is he just blowing off steam? Markets tend to overreact to news – especially bad news.

But beware of buying into a falling market – this is what traders call ‘trying to catch a falling knife’. Wait until the panic has eased, and there’s a clear recovery in progress.

And the good news?

Of course, not all Donald Trump’s rhetoric is negative. Sometimes his messages will give markets a boost …

Whether or not you want to ‘go long’ on nukes (a hedge you may never enjoy the value of!) … as I mentioned earlier, the overreaction effect is less pronounced in good news stories, so they aren’t going to be such an obvious play.

But these are early days in the Trump Twitter phenomenon. And I haven’t yet touched on the most interesting thing … the market reaction back on 6 December to Trump’s Boeing tweet …

The 10-second window and the hedge-fund secret it reveals

At 5.52am on 6 December, Trump hit send on that Boeing tweet. Just 10 seconds later, the price of stock began to fall.

What was going on in that 10 seconds?

That 10-second window represents something rather quaint and old-fashioned … human reaction time. Yes … that’s right … real human traders were reading the tweet … thinking about their Boeing shares … and then hitting their ‘sell’ button.

In an age of algorithms and high speed trading, this is the market equivalent of winding up a gramophone!

Let’s take another look at that tweet …

“Boeing” … “Cancel order” … All that’s missing there is a trademark “Sad!”

Surely any Twitter-following trading algo could have seen that as a signal to sell Boeing. What this tells us is that algorithms weren’t involved in these market sell-offs … but, when algos wake up to Trump’s Twitter account, we can expect to see significantly more volatility around his announcements.

In fact, so much so that he may even decide that Twitter isn’t a prudent way to make policy announcements. So, this special window on trading Donald Trump’s Twitter account may have a limited lifespan … so make the most of it now!

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The post How to trade Donald Trump’s Twitter account appeared first on Traders Bulletin | Free Trading Systems.

I admit it – I don’t normally listen to economics lectures, but this
one caught my attention … this week Esther Duflo told economists
(quite firmly) that they needed to be more like plumbers …

And I believe it’s a lesson that traders can learn from too.

It’s about mindset.

Traders – like economists, and many other people – can too easily get bogged down in the theory, rather than the practicalities of making
it work.

Sometimes we need to roll up our shirtsleeves and get our hands down the metaphorical u-bend of
the markets.

Sound messy? I can guarantee it’ll be worth it!

We should consider what Duflo called the ‘piping issues’ – this is the large infrastructure hidden from view. And the behavioural incentives – what’s actually going to make this work for you?

So, what does that mean in practical terms?

Stay with the program

I often think that starting out in the markets is a bit like buying into a fitness regime – the type that promises you a picture-perfect six-pack in just a few months. We start out with great enthusiasm, but before long we’re sweaty, breathless, that knee injury is starting to niggle, and we just want to lie on the sofa with a pack of biscuits …

Sometimes you will feel like that when you’re trading. Sometimes you’ll lose money and doubt yourself. Sometimes you’ll just wonder if it’s worth the effort. These are exactly the moments when we need to push hardest.

These are the lessons I’ve learned from the sports field:

• work towards consistent performances regardless of external factors.
• maintain a confident and positive outlook, even when things aren’t going well.
• deal with distractions without letting them interfere with your focus.
• tolerate pain and discomfort (in trading, this usually means a dent in our finances).
• remain persistent when the going gets tough.
• have resilience to bounce back from disappointments.

We say it again and again – discipline and consistency are the toughest jobs for traders.

Look at the big picture

Again and again, people ask me which are the ‘best’ indicators … the ‘best’ timeframe … the ‘best’ markets …?

But this is asking the wrong questions.

We don’t need the ‘right’ indicator … timeframe … market …. Instead we need a complete system that works.

There’s no shortage of fantastic trading signals in this world – they’re ten a penny (although plenty of people out there will charge you a small fortune for them, and leave you to work the rest out for yourself!). What’s tough to find is a consistent method that’ll take that signal and make it into long-term profits.

The complete system will involve exits, trade management and money management. If a trading method doesn’t give you all this, then it’s little more than a ‘trade idea’.

Plan for success

Profit curves never move in straight lines, so we can’t rely on the size of our trading account at the end of each week to tell us how successful we’re being in our targets. It’s the trading equivalent of weighing yourself ten times a day to see how your diet is doing!

If you want to achieve your goals, your progress must be measurable – and that means having a plan … sticking to it … and recording the results.

What’s achievable?

One of the criticisms leveled at economists this week was their big-picture policy making, that failed to take into account human behavior.

How will you motivate yourself?

This is about setting goals and rewarding yourself along the way.

Telling yourself that you ‘pay off the mortgage in ten years’ is a noble aim, but it’s just too vague. It needs clear steps along the way, and measurable benefits that you can enjoy.

I read an article recently about how churches were much more successful at keeping people to their resolutions than most. And the way they achieve this success is very simple – they set themselves shorter-term goals (like daily fasting, or giving something up for lent) and they check in with each other once a week.

A study by Washington University showed that by having a series of ‘landmark’ dates along the progress to your goal helped to achieve that goal. In practical terms, it meant that people elected to be sent reminders about their goals on key dates, like ‘the first day of Spring’.

There were believed to be a couple of reasons for this improved performance – first, it gave a shorter-term goal; and second, these landmark dates meant that people were able to cut off from past failures – putting imperfections behind them.

Motivation goes hand in hand with setting goals that are achievable. This doesn’t mean that you can’t think big – but don’t set yourself up to fail.

Find a trading method that’ll work for you …

If you don’t have much spare cash, don’t pick a method that requires a £20k fund …

If you work fulltime, don’t pick a system that’s going to take up hours of your day – you just won’t find the time to use it.

There’s something out there for you.

And you can’t do much better than this weekend’s offering – a method that’s consistently brought in £1k+ per month, for minimum risk … and it’s just ‘plug in and profit’.

Please watch out for Sunday’s email.

To enjoy more content and get it faster Follow @TradersBulletin

The post Trade like Super Mario appeared first on Traders Bulletin | Free Trading Systems.

I expect most people can think of a whole list of reasons why they haven’t set
out on an investment strategy. Stuff like …

… I don’t have the spare cash right now
… I don’t have the spare time
… It probably won’t work anyway

Sound familiar?

But I’ve good news for the cash-strapped, the time-poor … and the sceptic …

A good, solid investment program needn’t take up much time at all. Yes, you can spend hours out of your day on it … or you can spend just a few minutes a month on it.

Don’t get me wrong, time is important, but it’s not the time you spend on investments that matters … it’s about leaving those investments to grow. That means sticking with the program long-term. No, you won’t find life-changing profits in the next few months, but stick at it for a couple of years, and you’ll really know the difference.

And the same is true about the size of your starting fund. Yes, that may be a measure of your wealth (right now), but it isn’t a measure of your financial power. Financial power is about a mindset that isn’t blown off course by a few failures … or by that sometimes overwhelming feeling that we’re having to start at the bottom.

It can feel overwhelming to start at the beginning … and those first baby steps can be frustrating … but start flexing those financial muscles and you’ll soon feel the strength of them grow.

But I haven’t yet addressed the elephant in the room … “Will it actually make me any money?”

‘Fear of failure’ is often given a tough press. It’s seen as a weakness, or an irrational worry.

But a rational fear of failure – along with a healthy dose of skepticism – can be a good thing. It can keep us from doing some really stupid stuff, like jumping off high walls, taking up base jumping, or engaging with people who ring us up to tell us there’s a virus on our computer …

If you’re trading the markets, it’s unlikely that you won’t come face to face with failure at some point. We all take losses along the way. So, to be fearful of that failure is very sensible and rational. It’s those traders who are gung-ho about failure who’ll overstretch themselves, and blow out.

Where fear of failure becomes debilitating is where an fear is standing in the way of you achieving your goals.

This means taking a hard look at what those potential failures are: What could you lose … both in terms of money, and time? What’s the worst-case scenario? And how could you limit your risk so that worst-case won’t happen? And what are the potential rewards? Are they worth taking that degree of risk for?

By rationalizing your fears, you can control them and use them to regulate your behaviour, rather than letting them control you and keep you from your goals.

Or perhaps it’s your goals that need to be rationalized in order to bring risk under control.

For example, let’s say that your goal is to double your fund of £5,000 over the next year … but you’re fearful that a losing streak could make a serious dent in your trading fund. That’s not an irrational fear – any trading system that make 100%+ gains is going to have volatility. By adjusting your goals to a smaller return, you can reduce your risk.

Rational optimism

We often hear about unfailing optimists who attribute their success to their positive outlook. We hear less from the blind optimists who fell along the way.

Effective optimism is about more than wearing a smile and looking on the bright side. It’s about being a realist, but also having a positive attitude to the truth, and to the future. The rational optimism has an unswerving belief that success is ahead, but they are also well prepared for the pitfalls along the way.

And that’s exactly the way to make a success of your investments.

Look hard at your goals. Look hard at your risk. One doesn’t eliminate the other – they just need to find balance. And then your path to success is clear.

(If you’re unsure about risks involved on any investment method you find on the Trader’s Bulletin site, please ask – or post a comment on the site – to get some clear guidance.)

To enjoy more content and get it faster Follow @TradersBulletin

The post This one barrier is blocking your success. Here’s how to remove it … appeared first on Traders Bulletin | Free Trading Systems.

Touts may have struggled to sell tickets to Trump’s inauguration, but there’s no shortage of pundits shouting ‘sell the inauguration’ … as fear mounts that the ‘Trump effect’ has already run its course …

But this is a tough call to make.

An inauguration is really just a ceremony, but with so many unknowns about the direction the new president will take, global markets will be hanging on every word of his inauguration speech.

Here’s how research firm Acritas Research has depicted the risks and benefits of a Trump presidency:

The one conclusion is that this is a time to take action. Wherever the markets move, we need to be well-placed to take advantage.

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The post How the market will react to Donald Trump’s inauguration appeared first on Traders Bulletin | Free Trading Systems.

You’ve probably noticed that global politics – and global markets along with them – are in some turmoil right now.

This means volatility, and sudden swings following news … rumour … or general speculation.

And for the trader, this brings the attraction of the amazing profits offered by the breakout trade. But you shouldn’t even think of trying to trade breakouts until you’ve mastered the Whiplash Trade.

If you’re not familiar with the breakout trade, here’s an example …

Here the price is stuck in a range. The breakout trader will buy as soon as it breaks to the up-side of this range, or sell if it breaks to the downside. In this case, it breaks to the downside, the breakout trader sells, and profits from that accelerated downward trend.

Sounds perfect, eh?

• Step 1: Watch out for a price that’s stuck in a range (no price can stay in a range forever)
• Step 2: Prepare for an explosive breakout by placing an order to buy just above the top of the range, and an order to sell just below the bottom of the range.
• Step 3: Sit back and wait for the break, and reap the rewards from that explosive move.

What could be simpler?

Of course, a breakout doesn’t have to be from a range … it could be any break through an area of support or resistance, or breaking out of a triangle formation …

So, why aren’t we all stinking rich from trading breakout moves?

Well, anyone who’s tried breakout trading will be all too familiar with the false breakout. This is where prices pierce the resistance or support line, just enough to trigger our trade, and then turn tail.

The other problem with breakout trading is those explosive moves – it’s very difficult to get in at a good price when the market is moving fast. We find ourselves looking at a huge breakout candle, and wondering whether that WAS the move … have we missed the boat?

So, should we consign the breakout trade to the rubbish bin?

Well, in the spirit of environmentally aware recycling … I’m going to recycle my breakout trade in the form of the Whiplash Trade.

The Whiplash Trade has all the positives of the breakout trade, but is much safer …

Possibly one of the most predictable things in the unpredictable world of financial markets … is how people behave when things go wrong.

Experienced traders are watching this all the time.

When they look at a chart, as well as seeing where the price is, they can also see where all the invisible orders are … the ‘buy’ and ‘sell’ instructions of millions of investors around the globe.

And one of the best places to view this activity is in the playout of a failed, or halting, breakout pattern.

Don’t just look at the chart … listen to what it’s telling you

Here’s an example of a false breakout.

The price broke through resistance (which could have triggered our breakout ‘buy’ trade), then turned tail and fell sharply, right through the support level (promptly losing money for our breakout trader).

What happened here?

That upper resistance level will be littered with orders. When the price nears it, sellers come into the market. But when the price breaks through it, buyers will come in, plus, those sellers will have their stop losses triggered. All in all, that makes for a lot of buying power at the breakout point.

However, that momentum failed to maintain the upward price, and as soon as the price fell back below the resistance level, buyers will be looking to sell, and sellers will be looking to get back in.

The result is strong selling power … and the possibility of a sell-off. Which is exactly what happens.

But breakouts don’t always reverse like this. So, the canny trader is prepared for another scenario …

Another trick that ‘failed’ breakouts can play on us is the pullback.

This is where the price pulls back to the level of support that it broke, and then bouncing off that level with momentum …

This is an excellent way to trade breakouts – much, much safer than entering when the initial breach happens.

But there’s a crucial final piece to the Whiplash Trade jigsaw

The successful Whiplash Trade hinges on watching the price carefully if it comes back within the area of support/resistance that it broke out of.

This is where the renewed, often explosive move will take off – and watching price action is key.

Look for bullish or bearish candlestick patterns to signal which way the price will move …

The idea of having to make a judgement on exactly what the candles are telling us will fill many traders with dread. But I’m only talking about being able to recognize 2 or 3 key candlestick patterns: hammer, shooting star and engulfing patterns.

If it appears at an area of support, the hammer candlestick is bullish. It’s opposite – the shooting star candle – is bearish if at an area of resistance.

Here are some of these candles in action …

Here we seen a breakout to the downside, followed by a move back up to the support level that was broken. This support level now acts as resistance, and the bearish engulfing candle is a strong signal that a sell-off is about to happen …

In the next example, we have a breakout to the upside, followed by a pull back to the resistance-turned-support level. Right on this key level, we get two consecutive hammer candles – and sign that the price may turn on this level and accelerate upwards …

If you’d like to find out more about reading price action and simple candlestick patterns, please check out this post, or download the free guide HERE.

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The post How to master the Whiplash Trade appeared first on Traders Bulletin | Free Trading Systems.

As politicians continue to hold the reins of the financial markets, I don’t
know about you … but I’m not feeling that those reins are in particularly
safe hands.

So, as traders, we need to be prepared. These simple steps will ensure
that you profit from the ups and downs to come, rather than letting
volatility eat into your funds.

1. Keep risk small

Yeah, yeah, you’re probably aware of the advice to risk no more than 2% of your pot per trade. So, if you’re trading with a fund of £5,000, your risk per trade would be a maximum of £100. Therefore, if your stop loss is 50 points away, then your stake for that trade would be £2.

Yet I rarely speak to a trader who actually follows this advice.

In reality, many of us are vague about the size of our trading funds … Well, this is what I’m using, but I’ve some other funds, which maybe I’ll tap into if needed …

Or we’re vague about how much of those funds we’re actually willing to lose … There’s £10k in my fund, but if it draws down by £1k, I’ll stop trading altogether (which actually is like trading a £1k account) …

Many people are using very small funds with an attitude of “if I get lucky, I’ll scrape by, but if it blows up, then it won’t bother me too much.”

And a huge number of people just stick on the same stake, day in, day out, regardless of the risk that exposes them to.

Obviously, I’m not going to condone this! But if you’re committing any of these heinous crimes, I’m not interested in sending you into the naughty corner – I just want to be realistic about it, so you’re aware of risks you’re taking.

Let’s not pretend that we’re all running perfect risk-management profiles. Let’s instead be honest about the risks we’re taking, the losses we’re prepared to incur, and what we’ll do when a losing run comes along (which they will!)

And in volatile markets, our trading strategies can be put under pressure, so these are the times we may see extended losing runs. (They’re also the times we can see spectacular winning runs!) But we need to be prepared for both scenarios – and that means battening down the risk hatches.

2. Trade what you see, not what you think

Again, it’s one of those ‘sayings’ that you’ve probably heard many times, and think, ‘yeah, I know to do what the charts say, rather than to follow my hunches.’

If you’ve ever tried to predict the market’s reaction to a piece of news, you’ll know that it often fires off in a completely different direction from the expected, with prices jumping on bad news, and falling on good news. This is because the unknown is often already factored into prices … good news might not be ‘as good’ as was expected … or could mean that central-bank intervention is more likely …

For all the people telling us about causes and effects in the financial markets … the truth is that these links are often very dubious, and almost always unhelpful.

But there’s more to trading what you see than just ignoring pundits and gut instinct.

As thinking, breathing beings, most of us will have opinions on stuff. And those opinions affect the way we take facts on board.

About a year ago, I posted this image …

I think it’s a great illustration of what goes through our brains when we look at a price chart (and at a news story, or a badly loaded dishwasher for that matter!)

Beware of that ‘overvalued’ area, where you’re likely to want to stake higher, because you’re feeling confident. Flag up these trades – they could be costing you money.

And look hard at that ‘undervalued’ area – that’s a lot of profit opportunity you could be overlooking completely.

3. Trade the trend, but don’t chase the trend

No matter how strong a swimmer you are, you’ll always get further if you’re swimming in the direction of the current.

Going against the trend, trying to predict market tops or bottoms, is using up precious financial funds for smaller rewards. You might get lucky once, or twice, but ultimately this kind of speculation will cost you.

Don’t chase prices. Wait for pull-backs. If they come, they’ll offer a good entry. If they don’t, then you missed it – get over it. There will always be more chances (just as long as you haven’t blown your fund by not listening to points 1 & 2 above!)

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“Which are the best indicator settings for MACD?”

I normally recommend people stick with the default indicator settings – they are tried and tested, and there’s no such thing as ‘perfect’ settings – they all have weaknesses. It’s about understanding the indicator and learning its strengths and weaknesses, rather than trying to ‘fix’ it.

But here I want to show you a little trick. It involves doubling up on the MACD indicator, and applying very different settings to each. The first gives us a far-sighted early warning system of where a trend is about to change … the second gives us a lightning-fast trigger when that change happens.

The MACD powerhouse indicator

The MACD is a really powerful tool for traders. It’s a little powerhouse of moving-average data – all filtered down into a simple-to-read indicator.

It takes the form of two lines and a histogram, looking something like this …

The faster line is the moving average of the distance between two moving averages … the slower line is a smoothed out moving average of the first line … and the histogram plots the two lines moving closer and further apart.

(On some trading platforms – like the one above – the histogram changes colour depending on whether it’s above or below zero. On others – like the ones below – it’s green when getting bigger, and red when getting smaller. But don’t worry about the histograms, as I won’t be using them here.)

So, what do all these lines and bars have to tell us?

The MACD can tell us about momentum building in a market price, and give us clues about when trends are running out of steam. The place the MACD falls down is that it’s a lagging indicator, which means that it relies on what’s happened to predict what’s going to happen.

This means that if you have the settings turned up too fast, you’ll get lots of false signals. And if you have the settings on too slow, you’ll get into trades too late.

The solution most traders go for is to find some middle ground – not too fast, not too slow.

But here I want to show you a different solution … where we use a double MACD – one to cover each ‘job’.

The standard MACD default settings that you’ll find on most trading platforms are: 12, 26, 9.

Instead, we’re going to hack those settings twice, putting two different MACDs on our charts:

A fast MACD setting (this’ll be our trigger): 5, 13, 2

And a slower MACD setting (this’ll be our filter): 24, 52, 9

This is how I set them up (these screenshots are using Core Spreads) …

I’m also going to add a 55-period Exponential moving average to my chart, which will act as a guide for stop levels.

Applied to a 4-hour forex chart, you can see how different these two MACD readings are …

The fast MACD jumps about during the trend, while the slow MACD filters noise out of the price action.

Applying the Double MACD

Here’s an example of the kinds of signal we can get from this pairing.

I will only take a buy trade if the slower MACD level is above zero, and will only take a sell trade if it’s below zero.

The price also needs to be below the moving average for a sell, and above the moving average for a buy.

The trigger to open a trade is a crossover on the faster MACD.

The trigger to exit a trade is a crossover on the slower MACD.

Here’s an example …

With trading strategies, there’s always a temptation to load more and more indicators onto our charts, and I believe it’s an error to overburden our charts. Just because I think the MACD is a great indicator, doesn’t mean that two MACDs will be better than one. (It’s that kind of logic that landed me with 3 children and 2 dogs!)

I’m planning to do some more testing on this double MACD trading. If you have any thoughts – please share them at the foot of this page.

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The post Indicator hack #2: the Double MACD pimp out appeared first on Traders Bulletin | Free Trading Systems.

Despite what some investors would have you believe, it IS possible to trade with a small fund.

Yes, there will be restrictions in what you can do … No, you won’t make as much money (at first) as those with big funds … and VERY IMPORTANTLY you should steer clear of the classic ‘low stakes’ markets that too often suck in small traders.

Danger zones

Let’s take a look at the offerings usually served up to “small” investors. Here are three of the usual suspects …

1 • Scalping

Scalping is very appealing to anyone with modest funds. If you’re trading in a way that looks to make just 5 points, and has a similar risk, then trading at £1 a point, you’re only risking £5 a go. Surely this is the perfect way to get started without committing too much money?

Think again.

The problem with scalping is that you’re paying a large share of your profits out on brokerage costs. Let’s say that the cost of the spread is 1 point – that’s already snatched 20% of your 5-point profit. There are few traders who can afford to give up 20% of their profits – least of all the traders with the smallest funds!

2 • Penny Shares

Another area that draws in the smaller investor is penny shares. Why? Quite simply because they’re cheap.

Of course, there’s a great romance to trading penny stocks. What better investment story is there than to buy into a start-up that becomes the next Apple or Google? I’m sure we’ve all heard stories of people who’ve made their fortune in penny stocks, but … I’m afraid there has to be a but here …

There’s a huge element of luck involved in penny stock success. For every runaway success, there are many companies who fail to perform … and investors who fall by the wayside.

3 • Binary Betting

So, what about binary bets? Binary bets are touted as fixed-risk, simple tools – you either get it right and win your bet, or you get it wrong and lose your bet.

I don’t deny the appeal of having a fixed risk. However, it’s just as possible to limit our risk with spreadbetting by using a stop loss (sure, you may suffer some slippage, but this is pretty rare).

And the benefit of spreadbetting is that your reward isn’t fixed too – you can allow profits to run. Beyond the simplicity of them, I’ve yet to be convinced of the long-term benefits of binary betting, which tends to very volatile.

So, now I’ve completely bad-mouthed all the options you thought were open to you …

What great ideas do I have for traders with limited funds?

Small funds, small risk

It’s standard to view risk as a percentage of our trading fund.

So, first let’s take a serious look at the actual size of your fund, and how much you’re prepared to risk.

I often speak to people who may say that they have £5k to trade with, but they’ll give up on trading following a drawdown of £1k. (I’m not saying there’s anything wrong with having a drawdown limit – far from it – but that’s not the same as just throwing in the towel!)

So, does this mean that our trader’s real fund size is just £1k?

My point is that we have to be honest about how much money we’re prepared to lose (because you should only ever trade with money you can afford to lose.)

So, let’s say that you’ve £500 … Is it possible to trade?

The ‘textbook’ risk per trade is 2%. (Although I’d be open to any risk level below 4% – just be really aware of what that risk means. If you’re risking 4% and have 10 losing trades in a row – it CAN happen – you’ll find yourlself in a 33% drawdown. I know you won’t like that, but is that a situation you can stomach?)

Going back to that 2% … 2% of our £500 pot is just £10 risk per trade.

If you’re trading with a stop of 20 points, that means you need to be using a platform that’ll allow you to stake at 50p per point.

So, it’s very doable.

Where can you trade at 50p per point? Many brokers minimum stake is £1 per point, but not all. ETX, for example, allow bets as small as 10p on some markets. And it’s worth taking a look at the Metatrader 4 platform. For example, the main Core Spreads platform has a minimum stake of £1, but over on the Core Spreads MT4 platform, you can take much smaller positions using fractions of lots.

You’ll need to restrict yourself to:

• trades that don’t have very wide stops
• brokers and markets that’ll allow you to place small stakes
• brokers and markets that don’t have high spread costs

Next I want to look at things we can do to minimize the chances of that 10-losing-trades-in-a-row scenario that I mentioned above …

Small funds cannot afford inconsistent returns

The problem for traders – in particular, traders with small funds – is that trading is, by its very nature, inconsistent. One day you might make 10% profit … the next you can lose it all.

If you have a large fund, you can stomach drawdowns, but if you have a small fund, a few losses can quickly wipe you out.

The good news is that there are ways to make your returns more consistent. (And not one of them involves penny shares or scalping!)

1 • Stop chasing the big wins and best percentage returns.

Instead, look for modest profits with the smallest drawdown.Let’s take my Heikin Ashi Mountain system as an example. The biggest returns on this system come from using really ambitious profit targets – these are nice profits to have in the bank (77% last year). HOWEVER, a more modest profit target produces smaller drawdowns, while still making 46% last year.

2 • Use drawdown limits to help halt losing runs.

A drawdown is the size of a fall in your trading fund from its peak, following a bad patch. I’ll demonstrate how this works by giving you an example of how I’ve used drawdown limits in my own trading …If I have a system that makes either 3% profit or 2% loss per trade, and I find myself 6% down, I’ll stop trading.

The result is that the maximum I can lose in a day is 6% (roughly – it can sometimes be more if I’ve a number of trades on at the same time). While my maximum gain in a day is unlimited. I’ve naturally swung the odds in my favour. And the only effort it’s required is to trade less.

I ran a split test of this on my trading a few of years back, and over the space of six months, by applying the drawdown limit, I boosted profits from 57% to 98%. And – more importantly, my returns were more consistent.

3 • Compound, compound, compound.

The power of compounding means that if you find a consistent (albeit modest) return, it soon won’t matter how small your fund was to start with.

But there’s that ‘consistent’ word again. Erratic returns can really hamper the power of compounding – smaller gains without wild fluctuations will be more profitable in the long run (if you doubt me, you can see the proof here).

The secrets of low stakes trading

I’m afraid there is no silver bullet that small investors can use. Yes, you can pick up penny shares very cheaply … You can get into scalping trades with very small risk-per-trade … You can use binary bets for low-risk fast yes-no-type trades …

However, these are not the solution for the small investor, because they tend to have very low win rates (so you’ll suffer lots of small losses), and they have high costs (which will eat into any small profits you make).

The most important thing any investor can have – irrespective of the size of their trading fund – is persistence. That’s a mental attitude, but persistence also requires money in the bank to keep on investing, so you need to be VERY protective of your modest funds.

• Keep your risk as low as you possibly can.

• If the risk is too high on a trade (because of a wide stop, for example), just sit out. Better opportunities will come along.

• You can’t afford to pay for your broker’s lunch, so avoid expensive markets with large spreads.

• Be cautious, but don’t ever think you’re excluded.

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The post Low stakes trading appeared first on Traders Bulletin | Free Trading Systems.

I don’t claim to have a lot in common with Hollywood A-listers, but this Sunday night I was La La Land.

Well, obviously I wasn’t on a stage in LA in a tuxedo clasping a golden statue, I was actually at home asleep in bed.

But I’d gone to bed feeling pretty smug that my trade had almost hit its maximum profit target … only to have it cruelly snatched away the next day.

If you trade Heikin Ashi Mountain with me, you’ll probably know what I’m talking about.

On Monday last week, I went short on EURJPY. My strategy was to close half of my trade for a 50-pip profit, and then run the second half to a 200-pip profit, using trailing stops and reversal signals to get out earlier where it’s prudent.

Here’s what happened …

As you can see, I quickly took my first profit of +50 pips, and by Sunday night, the second half of my trade was tantalizingly close to hitting 200 pips, making me an easy 250-pip profit overall.

Perfect – hand me the golden statue!

But then the price turned tail, and spent most of Monday moving in the wrong direction, allowing me to scrape out of my trade on Tuesday morning with just under 100 pips.

Overall my winnings were around 150pips.

So, there I was, clutching my Oscars for directing, cinematography, original score, original song, production design and (of course) best actress … feeling cheated out of my big prize.

The markets have an amazing ability to mess with our heads – making us feel gutted, even when things go right!

And the reason for this is a simple one …

A good trading system will never get out at the top (assuming we’re in a long trade)

“Why on earth wouldn’t we get out at the best possible price?” you ask. Surely that’s what we should be aiming for?

Yes, it would be nice to get out of our trades at the best possible prices, but there is no way of knowing where a market top (or bottom) is.

All the technical analysis, market know-how and candlestick reading won’t tell you conclusively where markets will run too – there are just too many factors affecting prices.

So, if you think you’re getting out at the top of your trade … it just means that you’re exiting too soon. Either there’s a chunk of profits still to be made because the market will continue to run, or there’s not yet been any signal that the price has run its course (i.e. the price hasn’t yet pulled back).

Some traders prefer to take profits early, collecting lots of small winners. But if you want the optimum rewards, you need patience, nerve … and to get used to the feeling of giving back profits.

Because letting the market run means that we’re always giving back a part of our prize, because as soon as the market turns, our profits begin to erode.

It’s an uncomfortable feeling, but it’s worth remembering that if you always cash in your trades for a small profit … you’ll never catch a big one.

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You know the pitch … middle-aged, balding man, leaning against a flash car … promising you untold fortunes?

You may have noticed that I don’t do any of that at Trader’s Bulletin.

For one thing, I drive a very boring and practical family car (I hate depreciating assets!)

But the main reason is because that’s just not what Trader’s Bulletin is about.

The last thing I want you to do is risk too much money in an attempt to get a down payment on a speedboat …

Instead, I want you to know exactly how much time trading systems really involve …

I want you to know the kinds of returns you can expect, which is why I test them and use them actively myself …

I hope you find it clear, honest and up-front.

Here for example, is a breakout of my top systems right now …

CLICK NAME FOR MORE INFO: Rainbow’s End   Diff Code Transatlantic   Heikin Ashi Mountain   Hav Trading   PIE Trading

Not a Rolex watch or an exotic beach to be seen! In fact, I’ll even show you which systems have been suffering a pullback in the last two months.

I can see that it’s a bit like trying to persuade you to try a great new diet by telling you that you’ll feel hungry some of the time, there’ll be some effort involved, and the results will be good if you stick with it … hmm. Probably better off showing you lots of photos of super-slim bodies …

So, perhaps I should start to litter my messages with photos of gold-plated sports cars?

(not sure where the kids would sit)

But on a serious note – even if gold sports cars aren’t on your shopping list – most of us need something to motivate to get out of bed 10 minutes earlier to place a trade … or to sit down for half an hour each weekend to manage positions …

It’s not unusual for me to get letters like this …

Dear Mark,
Many thanks for the opportunity to try out your Diff Code Transatlantic strategy. I’ve decided that it’s not for me as I just don’t have the time to make use of it.
Regards XXX”

(Just to be clear – Diff Code Transatlantic takes about 5 minutes each day and has made over 17% returns over the course of this trial period.)

I don’t want to have a go at the man who wrote this letter – he may have really good reasons not to be trading right now.

But too many people out there just aren’t trading.  And with trading, the sooner you get started the better – because time is the most important factor in accumulating real wealth.

What’s blocking your route?

I take a huge amount of pride in helping people to find the right trading method for them, so it frustrates me when I’m not able to get someone onto the right path.

So, what blocks people from taking advantage of these systems?

A major obstacle is the size of our trading funds. If you’ve very little to invest, the ‘why bother?’ feeling can be quite overwhelming. But I hope that my comments last week will have shown that you don’t have to be barred from the markets – it is possible to trade with a very modest fund.

What’s more important is how quickly you get started – because time is of much greater value in wealth-building than the size of your initial pot.

Many of us come to trading because we want wealth, and we’re tempted by big winnings. And while it’s great to have some motivation … when we hit an obstacle, it’s easy to become demoralized.

The truth is that big winners are for traders with big funds.

If your means are modest and you’re trading with a sensible risk level, then you should be looking for modest winnings – even if that’s just a few percentage points at the end of the year.

If you expect too much, you’re likely to start using high stakes and taking unnecessary risks with your money. And before you know it, you’ll be wiped out, or will have taken such a steep loss that you’ll feel disillusioned and throw in the towel.

Successful trading requires: simple plans and clear rules that you can follow to the letter. And that’s why a clear trading strategy – whether it’s one you’ve developed yourself or have bought in – is so important.

Stick with it with discipline and consistency, and who knows, this could be you …

Seriously?

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