Forex discussion

[Overnight]

I must agree with Matt on this one. Lack of liquidity would be a real problem for me. I am one of those guys who are always preaching trade only liquid markets.

Well, there is nothing wrong with trying it with a single contract live, just to test it out! If you lose the trade due to lack of liquidity with whatever trading system you have, the loss won't hurt.

 

[Traderjohnsblog]

Well, there is nothing wrong with trying it with a single contract live, just to test it out! If you lose the trade due to lack of liquidity with whatever trading system you have, the loss won't hurt.

I guess you could do that but now we are talking about some time and effort. For example, if you attempt one contract and the fills are fine you have to now ask more questions. Was it just this time of day or day of the week? Was this acceptable liquidity on this contract or others? If one contract is ok what about 2, or 4 or ?

 

[Overnight]

...If one contract is ok what about 2, or 4 or ?

Indeed, and thus my ponderment to MattZ about using large lots on an illiquid micro contract that mirror the parent.

If I want to go long 5 contracts in Feb GC (which would of course fill, the thing has plenty of liquidity), how would a 50 contract order fill on Feb MGC?

 

[Traderjohnsblog]

Indeed, and thus my ponderment to MattZ about using large lots on an illiquid micro contract that mirror the parent.

If I want to go long 5 contracts in Feb GC (which would of course fill, the thing has plenty of liquidity), how would a 50 contract order fill on Feb MGC?

As Ibwas reading your response something occured to me. I wonder if the illiquidity of the micro contracts could in and of itself be a trading opportunity. Please dont try to trade this without more research but here is my thought.

If the micro contracts lag behind their parent contract or spot market perhaps one could watch for a move in the parent contract and trade the micro in anticipation of it eventually moving to parity. Sort of an arbitrage play.

 

[Overnight]

If the micro contracts lag behind their parent contract or spot market perhaps one could watch for a move in the parent contract and trade the micro in anticipation of it eventually moving to parity. Sort of an arbitrage play.

I have thought of the arbitrage angle on this for quite a while. I cannot see it happening at all. If it could, the micros would see huge amounts of volume. But the bid-ask quotes will pretty much match exactly what the daddy contracts are doing. Don't look at the last-price, but the bids-asks. You'll see there's no real opportunity.

 

[Traderjohnsblog]

I have thought of the arbitrage angle on this for quite a while. I cannot see it happening at all. If it could, the micros would see huge amounts of volume. But the bid-ask quotes will pretty much match exactly what the daddy contracts are doing. Don't look at the last-price, but the bids-asks. You'll see there's no real opportunity.

You might be right. It might he reflected in the spread. I have done ok doing something similar. I look at the overnight action on the dollar and play to the inverse relationship between the dollar and crude oil. I thought that perhaps the micro currency contracts might be similiar.

 

[Overnight]

You might be right. It might he reflected in the spread. I have done ok doing something similar. I look at the overnight action on the dollar and play to the inverse relationship between the dollar and crude oil. I thought that perhaps the micro currency contracts might be similiar.

If you like watching inverse relationships, try the DX vs. GC. I do not have ICE data so cannot see the DX side, but always wondered if there was something there during intra-day movements.

 

[Traderjohnsblog]

If you like watching inverse relationships, try the DX vs. GC. I do not have ICE data so cannot see the DX side, but always wondered if there was something there during intra-day movements.

I do that. Yes a similiar relationship exists there also. The problem is in both cases once parity is reached the trade is basically over. I am a trend trader and lime to stay in for the long haul. I consider what we are discussing to just be a little extra money along the way.

 

[D-3C0]

Let me stab the first question. You can tell you have an edge when certain trade patterns you expect to find on the chart are actually present. Those conditions should be part of your trading plan. When you open your chart and those conditions are present, that's when you trade. If they're not present,you don't place your entry. There is no need to stress over this.

This how I am trading atm, first I consider the context ( Current trend, key levels, upcoming news events, market structure), then I look at the more subjective things that other traders might be looking at around the current price level ( Trend lines, Fibs, MAs ). Then depending on where the price is right now relative to this context. I will make a decision on a good entry point and monitor price action and so forth.

I am have been consistently profitable for quite some time now, but there is a thought in the back of my mind that I really do not know what I am doing. My belief is that there is type of trader, that is, how can I say.. on another level to me. Where he will look at my trades and think "this guy is just drawing lines and hoping for the best".

FX with a good broker is fine, futures are better if you have the 10k min deposit, I will likely switches when I've got 10k+ available, but not desperate to.

Most none Americans are poor and trading FX broker, I dont think the land of the free can trade FX these days, only internal American Brokers if so, like there gambling sites, keep the losses in country.

Trump is supposed to reverse this, Russians where 1 of the main people to profit from drunk american gamblers, Trump owes Russia billions as be can't borrow from USA credit rating is aweful, so Russia helped get him in but got busted stopping Trumpy for reversing this as his part of the deal. ( current theory )

Do you trade on CME? I am just wondering about a long way down the path, where my size will increase dramatically to what I am trading, commissions will still be a pip and a bit but I am sure there are ways to minimise your fees.

I make no claim at all to any "deeper understanding", but I think I can offer an explanation of why some people get that impression.

I think it's largely because of a combination of circumstances and practicalities about the retail forex trading markets.

This is the part of "trading" that tends to attract the most gambling-oriented, least educated, least sophisticated, and especially the most undercapitalised trading aspirants.

They're commonly attracted specifically by the high leverage which is available to them because it's in their counterparties' interests to offer it.

These are often traders who don't really understand that the party they perceive as their "broker" is actually their counterparty and is incentivised for the "traders" to lose their money.

The industry regulation is also - overall - typically far worse than that involved in any other kind of trading.

There are huge numbers of counterparty "brokers" all over the world, often in lightly regulated jurisdictions (and some totally unregulated ones, too), and they know exactly how to attract the players whose accounts they'll most easily be able to empty: plenty of advertising, deposit bonuses, no-deposit bonuses, huge leverage, competitions designed to reward those who concentrate on profit maximization at the expense of risk management, and a number of other traps for the unwary.

And another factor: there are also specialist forums online (two, in particular, spring to mind) just for retail forex trading, and they're full of comparatively clueless beginners and some long-term strugglers who have never become profitable, all "advising" each other, and reinforcing each others' deeply flawed belief-systems and attitudes. (I suspect that the people trying to learn, at these forums, typically don't appreciate quite how unreliable online "information" is, where anyone can publish anything, when compared with the peer-reviewed output of mainstream, orthodox, professionally edited textbooks published by mainstream, orthodox publishers.)

Because of the existence of all this kind of thing in the retail forex market set-up, it's perhaps comparatively easy for people to imagine that "the whole industry's a scam".

It isn't quite true, of course, but that would probably be many objective, independent, intelligent observers' perfectly reasonable guess, from what they see going on.

Also, with regards to education, I have the time to commit to learning etc, but am not sure what topic or fields should I be committing my time towards. As with the forums as you have mentioned, they seem to regurgitate the same thing over. Is 'free' information lacking?. I mean there has to be more deeper understanding then what I have at the moment, which I feel is very shallow. Any suggestions for areas to look at?

 

[Xela]

Any suggestions for areas to look at?

Now you're asking. I'll see what I can answer "directly" both from what you've asked in your comments/questioned addressed to me and in your OP. But please note, first ...

(i) It's terribly difficult to give people "advice" about what areas to look at when you can't see everything they're doing, especially if they're doing things differently from what you do/did yourself; and ...

(ii) Everything I'll say and anything I'll suggest looking at will doubtless be "just my perspective", anyway, (which may limit its potential usefulness to you still further, because there's no reason to imagine that my perspectives will be the same as yours, and actually plenty of reasons to suspect that they might not be).

Sorry that I didn't have time yesterday, when I responded to Grant's post above, to respond "properly" - or even improperly - to your OP, which was interesting enough. And be aware that I don't trade spot forex now (though admittedly I did for many years, including - eventually - a few years of making a full-time living at it).

Is 'free' information lacking?

It isn't, strictly speaking, but there are huge (for many people) problems with it: specifically ...

(a) Identifying it among the morass of free misinformation is really difficult (especially online) unless you have a lot of experience - and of course the people who need it most tend, more or less by definition, to be the ones who don't have a lot of experience;

(b) Much of it is presented/offered primarily for marketing purposes (either obvious or covert ones, and many of the latter can be hard to identify in themselves, too).

I am have been consistently profitable for quite some time now, but there is a thought in the back of my mind that I really do not know what I am doing.

This is really, really unusual (and all speaks pretty highly of your chances, IMO ): most people out of the very small minority of spot forex traders who ever become consistently profitable have - if anything - an overinflated impression of their own skills/abilities, and that can end up harming them.

It may be, if you're consistently profitable, that your own skills/abilities are actually rather better than you're giving yourself credit for? (Depending, perhaps, on the extent of the "consistently", but the bigger that is, the more likely it is that you're better than you think.)

What you're doing all sounds logical and reasonable enough, to me, anyway, from what you've said (albeit that it's also sufficiently different from what I did/do to limit the value of my opinion on that score).

-How to tell if you have an edge

I'm surprised you're asking this, if you're consistently profitable. Trading spot forex, nobody's consistently profitable without having a genuine edge. Not having an edge is probably the single commonest reason for failure to become consistently profitable. If it helps, I said more about it in this post.

Anyway, the answer is "through statistical proof, to a high degree of confidence", and you do that by learning enough about the relevant aspects of the specific parts of probability and statistics involved in trading to be able to apply them to your own records and analysis. Recommended books for this (especially Harris and Vince) are in the post linked to just above.

and do things such as Trend following, Price action, Key levels actually give you an edge.

Yes, I'd say that understanding each of them is a pretty big and important component in developing the necessary skill-set to be able to achieve a genuine edge.

Trend-following isn't the only way to trade, of course, but it's one way and a pretty good one (the general principle being that one should try to identify suitable long entries during an uptrend and suitable short entries during a downtrend).

Understanding "price action", IMO, is close to essential (the people I know who trade successfully with indicators are actually using the indicators for directional bias and price action for the entries and exits).

I never know quite what people mean by "key levels" and I strongly suspect that not everyone means the same thing. If you're referring to areas of recent and/or frequent/multiple support and resistance, then I definitely agree. (If you're referring to Fib levels I'd throw them out of the window, myself, because they're no more real than astrology or homeopathy, but that's just my perspective: there are of course millions of people who disagree with me about astrology, homeopathy and Fib levels, and there are at least hundreds of people writing books to pander to all of them and reinforce their delusions ).

- Eg. Use of back testing etc. To find a statistical edge.

Yes, indeed. It has its limits and it's far from perfect, and there's no guarantee (especially with spot forex) that something that backtests well will be profitable, but it's still very worthwhile and you should do it, if only in order to decide what to forward-test.

If it helps, I can recommend "ForexTester-3" software, which is a reliable and good-quality product that more or less lives up to its sales claims (I'm basing this statement on having been an enthusiastic and successful user of its precursor - "ForexTester-2" some years ago). It's clearly worth its price, and more (and it's really cheap, anyway).

2. Use of instinct or feel :

I can't help you with that one. I'm "too different" from other traders in that regard.

-Spot or futures

-Comparison to other instruments

Personally, I find futures much better, for the reasons/reservations (relating to spot forex) that I mentioned in my post above and because of the availability of volume.

Don't know whether I've actually helped you, here, or not ...