Category: forex

Posted on

Successful backtesting in FX

Good Morning / Afternoon folks

A lot of people are willing to teach you their trading style, yet it’s not because I’ve watched cooking movies I’m a chef

(but fuck, I do like Burnt)

I can tell you the entries many strategies available for free are profitable. Heck, if I shared this strategy, which is pretty darn straightforward you could generate a profit

Yet, I can guarantee you that if you were to implement it straight out of the box without testing it & trying to develop a few filters & figuring out a clear exit plan you won’t go far.

Now, before I start diving into it, I shall mention one thing:

A technical analysis/trading plan to enter trades isn’t the only thing you need to develop to become a good trader.

  • You’ll need to develop clear exit rules.
  • You’ll need to develop a strong mental understanding of your strategy.
  • You’ll have to come to accept that you will lose money (from time to time).
  • You’ll have to continually work to either refine or even only execute this strategy.

Where to look for potential reversals

To make it easier we’re going to look at a daily chart with an indicator I have developed

This removes all discretion and we can be sure that every single zone will be created following the exact same rule

The chart represents the Australian Canadian Dollar from August 2020 till today with a single indicator.

Now before going on too far, let’s just explain what I am trying to highlight with my indicator

The indicator objective is to highlight areas where the price is likely to reverse

The logic behind their creation is to find days where the price saw quite a lot of hesitation in terms of direction (creating wicks that are bigger than the body of the candle) that are then engulfed on the following day

You’ll probably notice that it happens quite a few more times than where my boxes are created. Some appear to have been “missed” the reason for that is that I want those zone to be created either close/below (for demand zones) to the HMA to avoid having zones created when the run is rather extended and in need of a pullback.

This logic was to reduce the number of zones & improve their likelihood of success.

On this chart you can notice that out of the 16 zones that were created since August 2020 9 of them showed a rejection or at least a small reaction.

That doesn’t mean too much, it may only be Aussie Canadian Dollar that is as successful, but it highlights that the areas created are interesting.

The aim of these daily zones is purely to highlight potential areas of reversal

I am not looking to take a trade purely based on these boxes my indicator creates.

This is where multi-timeframe analysis comes in.

Using multiple timeframe analysis

While it is perfectly fine to use only one timeframe to find areas and potential entry levels, I personally prefer to use a different timeframe to find the confirmation I am looking for.

This enables us to ensure that all the timeframes are “speaking” the same language.

If the daily shows that price has reached an area of reversal (a box) that is great, however, I’ll only know that the level has been respected a few days afterward.

Instead of waiting multiple days I prefer to dig into the hourly (or even 4hour) chart

Using the hourly chart, I decided to use a rather simple indicator showing highs and lows according to a formula as to keep it as mechanical as possible (this however has a delay of three candles for a confirmation)

Let’s pop up the hourly chart on the main screen to make it easier for your eyes

As you can see each time a cross is created we can see that the high or low was respected for a few candles afterward/before.

Since we already have areas on the daily where we are interested in a potential reversal, I will be using these highs/low as my entry method.

A break and a retest is a nice quick and dirty set-up to analyze so let’s dive into it.

(If I wasn’t using my daily chart to find areas of interest, this strategy would require a lot more fine tuning to be profitable, that’s why multiple timeframe analysis is key)

My daily chart shows potential areas of reversal

My hourly shows a break in the current pattern of lower highs / or higher lows.

Both indicate that a potential change will take place in the market. That is the strategy I am looking to use.

Backtesting requirements

When I backtest I want to be as precise as possible with details, to be able to

  1. Find flaws in my model
  2. Find potential filters to increase the average return / strike rate
  3. Understand if I can change my target method or exit strategy
  4. Get as much data as possible to build a true probabilistic understanding
  5. Have clear rules once I implement it live

For example, in my recent backtest, I decided to add 3 filters based on the daily chart.

The hourly is still relatively new so I wanted to build a large data-set and let my unconsious learn as I went before diving back into it and adding filters.

Here’s an example of how I set-up my initial excel (or google sheet) before I start adding comments / screenshots / analysis of my filters etc.

It then tends to look like this

Yep, removed the dates, you guys can do sonme work!

As you can see, I track the set-up, the daily filters and the return, I’ve personally stopped taking screenshots since it reduces the speed of my workflow, I find it easier to look back on the charts (Alt G) on TradingView.

These trades represent price action since 2018 till today.

A few examples

Now I’ll be honest, I do not want to go into too much detail about my targeting or stop placement or even trade management.

I’ve spent over a hundred hours into this so far (my regular trading plan is over several thousands of hours)

So if you want access to the really detailed information I’ll invoice you the number of hours I’ve spent on this with my consulting rate 😉

However, you’re able to notice a rather clear multi-timeframe breakdown

On the daily we reached an area of interest for a potential reversal

On the hourly we broke below one of the crosses which enabled me to place a short order

The two timeframes were sharing the exact same information, the same story so I felt comfortable executing a short.

We can see that it successfully ran 1R, actually 2.2R if the stop was at the high

It doesn’t mean the trade was a success in my trading plan, however, it does show the potential.

This was only one example, the most recent area of interest on the daily, so let’s look further back

Daily was interesting but the hourly failed to confirm the edge so no trade

Let’s look at the one before that?

Daily fit the story

Hourly (took a long time and went quite far before pulling back) also fits the same story, another 1:1 if you were to execute it and decide it was worth placing an order even tho it had ran quite far

The previous one?

Daily fits the story

Hourly fits the story as well, another 1:1

I’m not going to go all the way back, my objective isn’t to show you if the strategy works, and if I use a 1:1 set-up, the objective is to show the importance of collecting data

Using filters

While I was testing a few other things while collecting data here’s a breakdown of the numbers I collected

The breaker 3 set-up is the one that is of interest to us.

You can see I collected 151 trades

For a return of 80.5%

And an average return of 0.53%

If you recall the different filters I mentioned previously (it depends entirely on what strategy you are testing so don’t just copy the same ones as I am)

I tracked three different filters:

Zone nbr

Confirmation

Before/After

You can notice that using no filters whatsoever I had an average return of 0.53 so it isn’t really worth using the confirmation or before/after filters since they don’t have a big impact on the average R:R they just reduce the overall return and compounding

However, using only trades from the 1st zone I can see that my average return would go from 0.53% to 0.67% and only lower my returns by 7% over the four years while making me take 40 trades less (which means fewer commissions/fewer carryover fees/ less exposure to the market risk)

Using that filter appears to be worth it.

From there, I decided to look at the impact of combining the filters together in different combinations (there were a lot of combinations possible so I won’t share all of them)

An interesting combination for instance was having a valid confirmation and remaining in the 1st zone

This increased the average return from the original 0.53% and 0.67% for using only the zone as a filter to 0.74%

A return of 50.8% vs. 73.2%

You may be saying to yourself, why in the hell would I accept to “lose” 23.2% that’s nearly 50% of the return

Well, that’s entirely upon you.

Your average return & strike rate matters

I’m assuming most readers of this blog have a trading capital of 5,000$-100,000$, which means they want big returns and not necessarily “safe” ones

However, that also means that a lot of you are going to be using a “prop” firm to finance you, which is going to have a maximum drawdown.

I personally use the 5ers

Which is a great service, has a great team, and has always paid me when I invoice them very quickly. (P.S. They also have several scaling solutions I find interesting)

Anyway, this isn’t a blog post about how great they are (they are, just trust me, DYOR)

That means I have a maximum DD that I can accept before they cancel my funding

This means my strike rate is actually rather important. I do not want to have a large drawdown, hence a higher strike rate and a higher average return can be beneficial, even tho it may mean a lower overall return.

That being said, I want to use a caveat (is that the right word) here?

Do not search for the strategy that gives you only 5 trades a year with a high strike rate and high average return, well, you may, but the idea here is that the more trades you take the more compounding you’ll be able to achieve.

Using the exact same data

1 filter applied = Only zone 1 = 0.67% avg return

2 filters applied = Only zone 1 & valid confirmation = 0.74% avg return

Well, fuck that doesn’t illustrate well my example of reducing my maximum DD by increasing my strike rate, ugh. Anyway, IT USUALLY DOES!

The market isn’t perfect clearly ahah

However, you still see what I mean, the returns added up where respectively 73.2% vs 50.8%

Once you start compounding, a greater number of trades makes the compounding do its magic

Using one filter, you can see a 43% growth in the returns thanks to compounding, in the second filter, it’s “only” 28% growth from their starting numbers. So let’s keep in mind that compounding is magic, but it works only on a lot of trades, if you take nearly no trades there’s nearly no compounding benefit

Anyway

All that to say

You want to collect a LOT of trades

To have more data

To know if your strategy is profitable

To know if it’s worth using filters

To know the exact benefit and drawbacks of each filter

That is how you end up with a trading plan.

Data is king

But keep in mind it’s not because a strategy was profitable in the past that it will necessarily be profitable in the future

Your next steps

  • Find a mechanical way to look at charts on two timeframes
  • Create a first set of hypotheses of stop placement & target (you’ll probably change them)
  • Figure out a few filters you’ll want to track
  • Use the replay button on trading view
  • Spend hundred/thousands of hours working
Posted on

Wednesday 28th of April

Good morning team! I hope you’re well!

I’m liking how the price is currently moving across a few currency pairs, so just being patient 🙂

Let’s dive straight into it!

FX Watchlist

AUD/CAD

Aussie Cad is approaching the area of interest, I’ve adjusted the daily level to fit with the weekly

CAD/JPY

Canadian Yen is also approaching the area I am interested in, this time for a potential short play – we’ve got an old weekly stack that still works with me so let’s wait and see what we get 🙂

EUR/JPY

Euro Yen started to play out exactly as I called it yesterday making a higher high, now the question is will it go lower or are we breaking this area of supply to beginning the next push up. I don’t know, all I know is that I’m patiently waiting for a short 🙂

NZD/JPY

Kiwi Yen is also on my watch for today, we are now within the area of supply so I’m on my toes waiting for a script entry for a potential short play.

Let’s be patient, it’s not guaranteed the price will drop anyway so there’s no point taking a trade that doesn’t fit our criteria.

That’s it for today, just wanted to share my “priority” watchlist since we’ve got quite a few things that could play out today or tomorrow!

Leaving you guys on that 🙂

Keep executing / Keep improving / Keep smiling 🙂

Posted on

The 4 Principles that Drive Elite Traders Performances

Even tho it sounds gimmicky these 4 principles really do drive success for traders. At least, I can attest it for full-time FX traders – others, I can’t say, that’s not my edge.

  1. Performing from your sweet spot
  2. Acquiring and building a skill
  3. Being able to deliver whenever there’s opportunity
  4. Remaining on top

Those four topics are the pillars for trading success, you want to become a full time trader – focus on those four, in that order!

I’ve just listened to an amazing podcast on chat with traders – Aaron Ffifield had James King on and the conversation was amazing that I’ve decided to make a blog post about it.

You can find the link to the podcast here:

You can also find James A King website here:

Now that we’ve shared this information, let’s dive into it!

What drives elite trader performances?

Ambition? Hard work? Talent? Yeah… But…That’s not the entire story

Neither is the 10,000hour rule, which I guess is rather reassuring for quite a lot of you?

In the point James King shares he makes it clear that he sees excellence as a pyramid, that has four core levels:

Screw using PowerPoint pyramids, might as well use a real one!

Those four principles are key to your success as a trader. As always, the first one, performing from your Sweet Spot is the most important. Since it’s the base, without it, everything would break.

Performing from your Sweet Spot

So what’s a sweet spot? Is it in the kitchen next to the candy jar? Nop, sorry to disappoint! I’ve got bad news, worse than the joke I just made, I actually can’t tell you what your sweet spot is.

You’ll have to ask yourself some questions, but we’ll come to them afterwards, let’s first address why do we need to perform from our sweet spot – it’s easier to perform when the goal you pursue aligns with the quality that makes you unique.

I’m not chasing someone else goal – I’m unique so I’m chasing my own goal and it’ll be way freaking easier if it aligns with things I’m good at.

So what’s your sweet spot? It will depend on your strength, interest and values – and those are not necessarily related to trading at all, it could be things you used to excel at when you were a kid.

What comes naturally to you? Do you like spending time reading news and staying up to date with what’s happening in the world? Are you better at solving puzzles? Are you always up to date on everything?

Once you’ve figured out what comes naturally to you, it could define your trading style, if for instance you love reading news and understanding how countries are being governed, then maybe trading the macro/fundamental side of things could be something you’d be better at that trading technicals? If on the opposite you hate watching news (#WelcomeToTheClub) but you like trying to solve puzzles, build stuff and have a strong imagination it’s likely you’d see better results in your trading if you were a technical trader.

If you are interested in technical analysis and trying to find levels where price is likely going to reverse and can spend a lot of hours without having to be motivated by someone else it’s a good sing – because the truth is, you’ll have to put in the time. So if trading gold interest you more than trading currencies or even equities you should focus on that side of things.

To find your sweet spot and to know what you should focus on to become an elite trader ask yourself, where have you excelled at in your life? What have you been highly responsive to training? What personality do you have (btw I highly recommend doing the Meyer Briggs test, it can help you find your strengths as well as your weaknesses, which is rather important!) What are you always motivated to do? What type of asset class are you the most interest in?

All of this leads to the question what are your values, what’s the most important to you? Is it money? Is it fame? Is it time? autonomy? etc Based on your values you may discover that working at a prop desk or a hedge fund doing research may be a better place than trading your own capital.

Find your sweet spot – and execute from there.

And yes, we’ve spent all this time not even talking about trading or performance but just about figuring out what we want to focus on.

Skill Acquisition

Here’s the good news, you probably won’t need to spend 10,000 hours working your ass off before you master a skill, if you do, it’s probably not your sweet spot or you’re following a shitty methodology 🙂 Let’s dive into the 7 key factors when building a skill to excellence.

Start with the comprehensive foundation

You don’t have to do extraordinary things – you have to do ordinary things extraordinarily well –> think about our friend Bruce Lee 🙂

You want to master the basics, without a mastery of the basics to stand on you’ll go nowhere.

Apparently in Tennis 85% of points are made in the service / return and return service – yet most tennis players only spend around 15% of their time practicing those skills.

You want to find what are the big levers for success, don’t focus on tiny marginal gains, focus on the big levers. That’s where the value is at. In trading it’s probably around entry / stop sizing and exists. That’s where the money is made, it’s not about anything else.

Practice over theory

It’s what you can do not what you know that matters – knowing how to kick a ball the most precisely as possible but not being able to do so in practice is useless. You’re better off not knowing the theory behind it but be able to hit every target that’s set.

Turn your learning into practice, don’t spend too much time on theory you have to think, do and produce –> once you’ve practiced enough you can articulate what happens then that’s fine, but practice over theory.

It’s all on you

I don’t really care if you end up super mega successful, your neighbor doesn’t either, it’s only on you, it’s your future. Don’t expect to be given the answers (well, that’s kinda what I’m doing here on a daily basis) you have to figure it out for yourself.

People can explain to you a strategy, but it’s on you to understand it and develop it. Advanced skills need to be discovered they can’t be taught.

Take responsibility over your future.

We need challenge to change

If we remain in our comfort zone we won’t evolve sadly, heck I wish sitting in my hamac would enable me to improve my 5k time, sadly I need to push myself to be able to build more muscles.

We need to spend as much time as possible in a challenging zone to be improving, you need to be absolutely focused on what’s happening – if you’re thinking about what you’ll be eating at dinner tonight when practicing you might as well stop straight away!

Get uncomfortable, learn to enjoy being challenged, but if you’re at a point where you’re starting to panic, you can take a break 🙂

If it doesn’t happen when you’re competing, it doesn’t matter.

There’s no point in practicing things that will have absolutely zero impact on your trading results – so many kids dream of becoming a football star, they go home and start practicing tricks with the ball, the problem is, being able to do fancy tricks with a football probably won’t win you a championship – being able to shoot straight, run faster, control the ball, tackle is what matters. Well, I think, I’m not a big football fan.

Create uncertainty

It’s nice to practice when you’re comfortable at home with zero stakes where you control all the factors, however you want to have uncertainty. You need to train in the conditions you’ll be executing – and then imagine even more extreme conditions – for instance for traders you may want to focus on extremely hard to trade markets, periods with drawdown, making decisions with a time limit, it’s all well having a backtest tool that you can pause to make a decision, but in live market conditions you’ve don’t have all the time you want.

Learning is the mindful search for solutions

It’s not mindlessly repeating a solution, it’s a mindful search for a solution repeated over and over – for instance think about your phone, to be able to unlock it with your finger you have to scan your finger several times, in different angles / positions –> what it’s doing is that it’s learning through variability to be able to recognise it whichever angle you end up using.

If you only gave your phone 1 try to collect your fingerprint I’m willing to bet your phone wouldn’t open as quickly as it does now, it would reject you quite often as well just because you didn’t train it with different conditions.

Out of every successful trader I’ve met (and the ones James has met) it’s very rare for them to rely on 2 extraordinary things – instead, most successful traders have mastered the basics and just don’t do mistakes that cost them their career.

Anyway that’s enough for our second point – the skill acquisition to become an elite trader.

Delivering on demand

Being able to execute your strategy whenever the time calls for it even tho you’re under pressure is key.

I remember Josh Waitzkin in the art of learning was talking about the ability masters have to switch on and off – for him he could just listen to one song and be pumped up ready to fight.

Outliers are able to flick a switch to regulate their emotions and execute. You want to be able to enter a flow state and have access to all your knowledge and training.

You need to spend time building your skill of getting into the zone – it’s a skill like all the other ones.

Your thoughts + Your actions = Emotional State

If you realize your are in a suboptimal state, think what are you doing, thinking, how you’re sitting, breathing etc.

Your thoughts and actions will change your emotional state.

The sea won’t always be calm. You need to be able to get comfortable even in the worst weather.

If you feel overwhelmed try to break the feeling down – is it because you’re in too many trades? If so only take 1 trade at a time until you’re comfortable. Is it because you’re trading a new asset class? Trade with a smaller risk!

A nice short section, but it’s so key.

Josh Waitzkin recommends listening to a song every single time before practicing – for instance before every single workout for a month listen to the same song. After a few months of that habit it’ll probably pump you up as soon as you hear it.

Sustaining Success

Let’s start this section with dark reminder: More people die going back down Everest than going up.

It’s actually got a name in climbing, the “post summit peril”, you’re tempted to bask in the view, enjoy life, congratulate yourself and switch off your focus really enjoy the moment. When you go back down….

There’s two key biases we need to keep in mind

  1. Continuity bias – We believe the future is the same as what we’ve experienced, we down play the risk since we’ve made it so far, it’ll just remain the same.
  2. Illusion of personal control – We downplay the rate of luck / variance in our success, we forget we were lucky because we had a favorable backwind – it makes us complacent because we believe it’s 100% thanks to us, we forget the circumstances were in our favour.

Those two key biases probably won’t impact us immediately it’s a slow process that will definitely lead to your long term demise sadly.

Although we want to strive to become the best, you can never allow yourself to believe you’re there –> when you’re second you have the drive to keep moving forward, when you’re first it’s easy to loose all motivation.

To do so, develop a comprehensive understanding of what it’ll take to win and a comprehensive understanding of where you are –> that will enable you to find your weak spots and what are the important levers you want to focus on.

If you really understand what is holding you back, the solution will probably fall into your lap 🙂

If you look at the best teams, for instance the All Blacks when we think of rugby, they don’t focus on being the best in the world in their sport, they look outside of their “industry” they are competing to get the best win rate in every sport. They’ve set bigger targets.

Standing on your own success won’t be enough. You need to keep evolving

What you need to keep in mind is that you’re basically evolving in a ever continuing circle of improvement – even tho you’re at the top of the current cycle, you’re not at the top of the mountain, you’re only in a transitional moment towards the next cycle.

That’s it for today!

I hope you enjoyed this one!

Oh and, James A King released a book I’ve just ordered on Amazon so I can’t speak about it, but the podcast was fantastic, you can find it here

Once again;

You can find the link to the podcast here:

You can also find James A King website here:

Posted on

Wednesday 30th of September

Last day of the quarter, last day of the month, but I don’t think I’ll be taking any trades today, we’ll see what the price action does.

I finished the month 1.57% using 0.5% as my max risk per trade. Where I am annoyed is that while I correctly sized all my position to have 0,5% risk or less, I was sometimes forced to risk less than 0,5% due to lot sizes, I’m currently going through the fivers trial program, hence I’m being very careful (as always) with my risk, but the main issue is the small account.

return for september 2020

As you can see in this screenshot neither of these 3R winners were close to 1.5% or even 1.45% that is due to the lot sizing as well as commissions and roll over fees.

All in all, that would’ve resulted in a 3.14% month had I been using my 1% risk I use in my personal account.

But now onto the important stuff 🙂

Daily Watchlist

EUR/CAD

Euro Cad used to be my favourite pair to trade (when I lived in Canada and had most of my savings in Euros I was always trying to figure when would be the best moment to transfer money over)

I’m liking this pair, we are moving towards a fresh trend line break zone, which has a nice weekly stack on it as well.

I hasn’t really moved since March, so we’ll see if once we reach supply we are able to finally get out of the daily consolidation it’s been in for quite a while

Once again, I will need to see more things than just the price reaching the zone to take an entry.

https://www.tradingview.com/x/vVo33NzO/

eurcad

AUD/USD

Aussie Dollar remains on my watchlist since we actually did not touch the zone (if we adjust it to the weekly stack) hence I believe that the zone remains fresh to the upside.

Time will tell if there’s indeed a move into this demand zone, but if there is, there’s a nice weekly stack. Let’s see how it gets there.

If the price decided to go higher we’ll have to settle for creating a new counter zone if the supply area is broken since it is no longer fresh.

https://www.tradingview.com/x/STx7qTIm/

audusd

EUR/AUD

Let’s talk about the euro and aussie crossover since I’ve mentioned both currencies above 🙂

I mentioned yesterday that I wasn’t surprised the price was pulling back towards the 4h 50ema in a corrective pattern to gain enough strength – to catch bids – to reach our supply zone, it probably won’t reach it today, but it’s a possibility

Once again, that zone has a weekly stack so all is good on that side of things, now it’s just a question of waiting to see if the zone is reached, or not, and how it does so.

https://www.tradingview.com/x/pycIW6Dx/

euraud

EUR/NZD

I’ll be also eying up a potential short on ER/NZD, we are still quite far away from the zone, but it’s not too surprising to see this pair move more than 200 pips in a day, I was planning to only talk about it tomorrow but we’ll do it today too!

This set-up is quite nice, the pair is moving quite correctively towards this supply area, it fits with my overall EURO short bias (once the supply zone are reached), there’s a clear weekly stack.

I think this zone kinda jumps to the eyes, so we’ll see if other people notice it too.

https://www.tradingview.com/x/L1OROql5/

eurnzd

Book wise…

I finished rereading Meditations last night and I’m now reading the Lives of the Stoics, the new book by Ryan Holiday, which talks about the lives of the “heads” of the school – I’m only 20% in but I’m enjoying so far.

I truly believe that philosophers should show us how to live, by their own actions rather than just texts.

Wish philosophy on how to live was still taught to this day.

I finished rereading Meditations last night and I’m now reading the Lives of the Stoics, the new book by Ryan Holiday, which talks about the lives of the “heads” of the school – I’m only 20% in but I’m enjoying so far.

I truly believe that philosophers should show us how to live, by their own actions rather than just texts.

Wish philosophy on how to live was still taught to this day.

Tweet wise…. Here’s my favourite of the day

Zoom out guys! Zoom out 🙂

Posted on

Friday 25th of September

I’ll admit, writing these daily watchlist before coffee is quite hard, and yes, a FX trader doesn’t necessarily need to be drinking coffee! Big new eh.

My AUD/NZD scale in from 2 days ago, the one I explained yesterday, is now closed for -1R, it reached my stop loss.

Wasn’t the prettiest set-up but it fits my trading plan so I’m happy.

That being said, it did make me think about the validity of different set-ups, so I did some data analysis to see if there was a pattern of scale in I shouldn’t be taking.

On my drawing the black box is the 4h entry, the grey one the 1h scale in entry.

So in 1/2 the 50EMA is above the 4h entry, in 2/4 the 50EMA was below the 4h entry.

In 1 & 3 the 1h scale in was taken above the 4h entry, and 2/4 below it.

Was interesting, it reinforced my belief that the set-up 4 is definitely not worth it, out of the 14 trades taken that followed this plan, only 3 were profits. I usually want to take a scale in when the price is confirming my bias, not if there’s no additional confirmation since the original entry.

Hope you guys enjoyed this quick behind the scene work explanation!

Now onto the important stuff, my daily watchlist!

Daily Watchlist

AUD/USD

Still on watch from yesterday, we nearly reached the zone – we barely barely touched it, so it remains fresh in my eyes, however we didn’t reach the weekly stack, so there wasn’t any trade for us.

As you can see on this screenshot, the zone I’m interested in begins at 0.6995 when we adjust it to the weekly stack.

We’ll see if the price reaches this level, and if it does, if it gives us an entry signal.

https://www.tradingview.com/x/C15EPQ8S/

C15EPQ8S (1796×1280)

CHF/JPY

As we can see on the left, there was a strong supply area where the price currently is, it lead to 5 move lowers, a lot of support and resistance traders will want to be buying long.

I’ll be waiting for the zone I have drawn here (below 113.5) to be reached before looking for a potential long.

Once that area is reached, most of the support and resistance traders will be getting out of their positions which will give us liquidity to enter in the trades to the upside.

Let’s see what happens

Ud6b66DZ (2119×1280)

https://www.tradingview.com/x/Ud6b66DZ/

EUR/AUD

Euro Aussie is another pair I mentioned yesterday but didn’t go into depth about it since it still had a decent amount of distance before reaching the zone

This zone, a counter zone of a counter zone, is something I’m keen to see play out, I wouldn’t be surprised if we saw the price move lower today and then back up on Monday, we are currently at the upper limit of a wedge/correction pattern so people that trade patterns and market structure will be looking for shorts.

We want to be shorting this pair when they are forced to buy out from their positions, I believe this zone is valid, so we’ll see what happens

I will obviously wait for an entry pattern before taking a trade

https://www.tradingview.com/x/2Qx3JwBS/

2Qx3JwBS (2119×1280)

GBP/JPY

As mentioned more or less for the entire week, I’m still looking for a potential GBP/JPY long play, time will tell. I’m not going to spend too much time talking about it, feel free to check out my previous daily watchlist for more details

To be entirely honest, I’d be more than happy if the Pound would just explode to the upside 🙂

Here’s a screenshot of my GBP/JPY chart

https://www.tradingview.com/x/LbRyJGJv/

LbRyJGJv (2119×1280)

Book wise…

I’m going through my physical version of meditations at the moment to be able to take notes and refresh my memory.

At the same time I’m reading a fun book (One from the Jack Reacher series), waiting on the 29th for the Lives of the Stoics to be released 🙂 The three chapters I got to read from pre-ordering it were good so I’m looking forward to it!

Didn’t especially enjoy the beginning of the Malcom X biography so I stopped reading it, it was recommended by several people so I’ll give it another try next month!

Tweet wise…. Here’s my favourite of the day

Short and sweet, I hope I didn’t waste your time with this daily watch!

Feel free to contact me on Twitter too! Probably more responsive there than IG these days

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Friday 21st August 2020

Let’s get started with my daily watchlist

I probably should’ve waited for a more interesting day to start sharing my daily watch but whatever 🙂

EUR/AUD:

I am observing a counter zone at 1.666 to 1.676 that could be quite interesting so my alert is set there.

There’s also a rather clear weekly stack so I’ll be keen on it once the price reaches that zone

https://www.tradingview.com/x/MjwO8O00/

GBP/AUD

Rather similar to EUR/AUD that’s why I’m not going to follow the alphabetical order (by the way, why is there an order? It’s just letters, are we saying that M is better than N? anyway…)

The zone I’m looking at is 1.851 up to 1.866, once the price gets there I’ll be looking for a nice little short, it also has a weekly stack

https://www.tradingview.com/x/o1PHX3DW/

GBP/USD

I’m also interested in GBP/USD for a short coming from a zone that was created due to a trend line break (so taking the best value). The zone I’m looking at goes from 1.333 up to 1.342 (or maybe even up to 1.351)

There’s also a clear weekly stack so rather keen, looking forward to it reaching that zone

https://www.tradingview.com/x/pe5kUEDb/

NZD/CAD

Liking this potential zone, we’ll see what happens once the zone is reached, it may be a little weaker than the previous three but figured I should probably mention it anyway

The zone I have drawn goes from 0.855 don to 0.848

https://www.tradingview.com/x/LeVfs27f/

Book wise…

I’m currently reading The Prince (By Machiavelli)

It’s rather good if I may say so! It may be targeted to the 16th century and for princes, but there’s so many similarities in life both personal and business that I think it is great.

I’m about half way through the book and he shows the drawback of using mercenaries to gain control of territories, that example can be used in business these days about hiring agencies to do your marketing etc… It may be useful in the short term but it sets you up for your failure in the longer term

If an injury has to be done to a man it should be so severe that his vengeance need not be feared.

Machiavelli

Have a good one and see you on Monday!

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You don’t really trade the market

Everyone thinks that we trade the market we’re invested in, would that be FX, commodities, stocks etc etc

But is that the case? I mean a market is a market, it’s nothing at all.

It’s not as if you go to a counter and ask for two dozens oysters and some nice smelly cheese, that’s something we can eat and enjoy.

No, we only trade our beliefs.

Currencies are only worth X because of the belief/trust we have that they are worth that much, because someone told us it was the case.

Trading is only a matter of showing our belief that a currency is going to become more valuable / trustworthy for others

Don’t focus on trying to understand how a market moves, it’s only the sum of all the beliefs of the participants.

Instead, try to understand how you come to believe something, and how others change their minds.

If you’re able to understand a change in the mind of the other traders/investors before it takes place you’ll be well off.

You don’t really trade the market. You trade your beliefs about the market. 

~ Van Tharp

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The four pillars for trading success

The four pillars for trading success

We all wish trading came naturally to us; after all that would’ve meant saving countless hours, (a lot of) money, friendships that were broken after having a shitty day in the market

Oh and these reflect my personal views and experiences, I am sure you could argue for something different

What are those four pillars?

(Wish their was like a way to drop a curtain or something)

  1. Persistence
  2. Risk Management
  3. Psychology
  4. Trading Edge
Image

Let’s break these four pillars into a section each:

Persistence

Trading is difficult. Like any other skill it will take time to master, the only way to through the deep water is to preserver, if you haven’t given up you haven’t failed.

As long as you get back up after being pushed back down there is still hope.

That being said, having fallen off (many) horses it does take persistence to get back up on the horse, the same goes with trading, there will be losses, there will be mistakes, but there is a need to continually get back up and get ready for another try.

There is also an undeniable need to spend countless hours in front of charts in order to develop and test an edge and persist until we feel comfortable with our own strategy

Trading is all about survival, protecting the assets we have, making them grow, without getting killed. Keep that in mind.

Image result for persistence quote paramahansa yoga

This point is rather straight forward so there’s no real value spending too much time dealing with it, we are left with

  1. Risk Management
  2. Psychology
  3. Trading Edge

Risk Management

Risk management is probably the first subject new trades should look into, we can break it down into two topics: protecting the initial capital and an understanding of probabilities.

Protecting the initial capital

One of the best ways to screw up your psychology and give up is by taking huge losses that will destroy the size of the trading account

In order to protect the initial capital, it is key for traders to understand how to size their positions and (ideally) maintain a constant risk profile.

Why is it so important to avoid large losses?

If a single trade isn’t properly sized, it is possible for a trading account to be blown – by that I do mean, it is possible with one trade to lose all the money (and potentially more) you have in the trading account…

Let’s dive into “smaller losses”:

Image

A 10% loss requires you to make 11% back in order to get back to the starting point, which when we think about it, isn’t that bad, it could be worse… However, if you take a 50% loss then you will need to double your account in order to bring it back up to the starting size…

Yep…. Here’s the example:

10,000+10,000*(-0.5) = 5,000

5,000*X=10,000

X= 2

(Mainly wanted to show the benefits of getting a university degree, I can do maths now 😊)

The key lesson here is:

 MAKE SURE YOU DON’T SCREW UP THE POSITION SIZE

The likelihood of you preserving and not screwing up your mental game after such a loss is extremely low so… If you want to have a career in trading, make sure you size your positions correctly.

Image result for it's not about being right or wrong soros

Understanding probabilities

Now this one may seem a bit more obvious, but over many discussions I’ve realized it may not be the case

There will be winning trades, but there will also be losing trades, this is a given, anyone that promises you a 100% strike rate is either into high frequency trading (and works at a huge fund) or is trying to get your money, and the likelihood of the second far outweighs the first…

Now it’s let’s dig into why I think it is key to understand your trading edge and your numbers (more on that afterwards)

If you are a trader you may have a 45% strike rate (it is possible to be profitable with a lower strike rate, as it is possible to be a consistently bankrupt trader with a higher strike rate)

As you can see on the following image, you have a 72% likelihood of taking 6 losses in a row over 50 trades taken, yep a 72% likelihood, that’s freaking surprising eh

The likelihood of taking 7 losses in a row is at a “more acceptable” probability of 49% (which is still super high!?)

Image

Knowing the probability of taking 7 losses in a row is close to 50%, no better than flipping a coin, how much should you risk?

If you risk 5% per trade, you shall be down 30.2% (assuming you adjust your $ risk after each trade) that means you’ll have to make back 43% to get to the level you were before this losing strike… A rather big number if you ask me – however if you only risk 1% then you’re only down 6.8%

Let’s say you’re trading a 100,000$ account, I would highly prefer being down 6,800$ instead of 30,200$… Can you imagine the impact on your psychology? I would be devasted with a 30.2% loss

Image

Don’t forget, trading is a survival game, and you can only survive if you protect your initial capital and risk the right amount… Don’t show off… Now onto

Psychology

Probably the less fun part of trading for most of us (I’ll admit, I actually love it!) but you’ve probably heard it from many people psychology is key for traders, it may even represent 80% of the work you need to do to become a profitable trader

Now what are common traps we can fall into

  1. Sticking to our bias
  2. Trying to prove we know better
  3. I can’t lose so risking more
  4. I just need to get even
  5. I’m just one trade away from being profitable this month

I always used to get told off for doing more than five bullet points but there’s so many other examples!

So how can we have a profitable psychology?

  1. Focus on the process – they do not care about being right or wrong
  2. Understanding the numbers linked to your trading strategy
  3. Having strong opinions weekly held and being willing to flip sides
Image result for psychology trading quote

The most important part of trading is understanding that the market doesn’t care about you, and you shouldn’t really care about it. Instead focus on the process, be willing to jump ship and understand nothing is guaranteed in the market.

Instead, focus on yourself, spend time off the charts, recharge, meditate, empty your mind, and execute your trading plan

The worst enemy you have is yourself – and sadly you’ll never really get to beat him to the ground, even the famous Greek philosophers sometimes had urges (some were also doing the exact opposite from what they preached…)

Image result for conquer yourself zeno of citium

Truly believe I can’t make a better point than Yvan:

Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.”

Yvan Byeajee, The essence of trading psychology in one skill

Try calming your mind, ideally empty your mind from all greed hesitation and passion, instead remain neutral and in control. The best way to do that is to meditate, and if you refuse to do that, go for a thirty minutes walk without your phone, just paying attentions to your thoughts, it should help you drop all those negative charges.

Tihbo puts it beautifully

Now I could spend an entire day ranting about the importance of psychology but I believe this is a journey you alone can take since it is deep inside you and no matter how many quotes I put in front of you the decision to let go and become present is yours.

Having a trading edge

Yep, this is the last point… Not necessarily because I believe it’s the less important, but you can make money with so many different markets and in so many different ways, you can skin the cat yourself.

However, it is extremely important to have identified your trading edge and be able to prove it exist in the historical market without having to adjust it, that’s one of the main problems quants are faced with, they adjust their strategy so it provides great returns in the past but does not work when the market conditions change

So what do you have to do?

Back test your strategy over several years and several pairs, forecast possible moves, use your trading plan with a reduced risk for the first few months in order to make sure the edge is there

Understand that even a profitable strategy will have losses

Here’s an example of my go-to set-ups after having backtested it over a few pairs for 2019

I have come to realize, that two of my favorite set-ups are not very profitable for me (the 3rd rejection and the hover) therefore I will have to adapt, another key point is understanding that my strike rate (without including BE) is of 34% however as you can see the returns are profitable, because my average win is a lot bigger than average loss.

Keep on working, keep on testing your strategy and never become over confident, because that will be your end.

The end 😊

Before I ask you to like this post and share, I would like to thank both Tiho Brkan and Yvan Byeajee I most of the data I used came from their tweets!

What do you think are the key pillars for success in the FX market?

Hope you enjoyed this article!

Onwards,

-Max

Posted on

Cost of living as a digital nomad

One of the most frequent questions I get is “how do I afford to travel so much” so let’s dig into my expenses!

Cost of living as a digital nomad in Asia

When I was staying in Indonesia, I spent three months living in Lombok and stayed at a hostel for the entire duration because I loved it there…

The hostel I stayed at was:

Bamba – the best hostel in Kuta, Lombok!

So many amazing beaches close by

You can stay an entire month there for around 400$

The breakfast there is included and it’s amazing – there’s a cool swimming pool but more importantly, I love the team that works there, I made so many friends, and would even consider the staff family 🙂

That being said, if you are on a really strict budget, you can find cheaper, especially if you are willing to negotiate once you are there and go to smaller less well known hostels

Food wise, you can eat for 2$ per meal, but if you’re going to want to have something else than local dishes then it can go up, maybe even as high as 5 to 10$ but you don’t need to treat yourself as a king all the time so let’s say a 12$ average per day (that’s a lot) including coffee and beers?

So let’s say 350$ – which can easily be more or less depending on your lifestyle once again

A scooter rental was 5$ per day if I remember correctly so 150$ per month

Fuel + parking (when needed) could add up to maybe 30$ per month

That’s all you really need

400+350+150+30 = 930

With less than 1,000$

you can (easily) live in Lombok, Indonesia

But… That’s not including day trips if you want to rent a boat, if you want to go surfing, if you want to go trekking and need a guide, etc etc, so in the end it will cost you more – maybe even up to 500$ if you really want to go for it 🙂

So 1.5k and you’re set

From that you’ll need to add plane tickets tho

You also need to keep money on the side to pay your taxes, don’t make them wait, it’s not worth playing with them, especially if you run an online business!

So the truth is,

you’ll probably need to make more than 2k per month

Cost of Living in London

Now, I’m currently in London, so let’s compare 🙂

First off, let me start with:

DON’T STAY IN A HOSTEL IN LONDON

They’re fine if you are staying a few days, but more than that you’ll definitely want to use Airbnb – you want to remain productive while in London, and hostels here aren’t that great because there’s no privacy and not much space to do any work

yep that’s my affiliate link, but let’s be serious, if you don’t have an airbnb account are you coming from Mars?

In my case, the Airbnb is costing me about 1.2k per month, sure I could’ve found something cheaper, but I believe it’s better to stay in a decent place where I can work & cook (without burning the apartment down) than be too cheap

I’ve got a cool view from my Airbnb tho!

I really don’t want to look into how much I’ve spent on coffee, so let’s say that food + coffee + a few drinks ended up around 500$ for the month (wouldn’t be too surprised if it was more)

Probably spent 150$ on “public” transport

So with 1.8k I’ve got my basic living expenses

Then obviously if you want to eat in restaurants, go out and party, visit the UK (the train is bloody expensive), go to museums and all that it’s going to end up being more expensive

So you could live in London on 2k per month if you want a basic lifestyle

If you want something more fun, expect that number to rise very quickly, especially if you want to live in the center of London (I’m in Zone 2 to reduce the cost of rent, no need to commute into the city every day so might as well save money!)

You’ll also need to take into account taxes once again…

So the truth is,

you’ll probably need to make more than 3k per month

The digital nomad lifestlye

So to answer, how much does the digital nomad lifestyle cost:

IT DEPENDS ON YOU.

It depends on where you go

It depends on your standards

It depends if you are going to travel around

It depends on what food you’re eating

If you want to party

If you have loads of taxes to pay

Or you can start hitch hiking around the world and be a true nomad, even better, get yourself a camel, an Indiana Jones hat and hit the road

If you are willing to sleep outside in the nature it will be cheaper, same for a hut, if you want to stay in five star hotels tho… It’ll be different!

I hope that answers your questions!

Sorry I couldn’t give a straight answer but it depends entirely on you!

If you liked this post, it would mean the world to me if you could leave a like 🙂

Onwards!

Posted on

Work as a digital nomad

Digital nomad & work

One of the most frequent questions I get is: “How do I get work done while traveling?”, so will try to answer this one.

I feel like I’ve already used this photo

I DON’T DO ANY WORK…

I spend my days at the beach taking photos duh.

Okay, that’s a lie (I hope you knew that!)

The truth is, it’s not because you’re a digital nomad that you won’t be doing a lot of work – the amount of work you need to do is the exact same as if you were living at home.

But it does depend on your work, as a FX trader, I spend around three hours a day doing work, but that’s a normal amount of work for any trader? (Do you spend more time on the charts?)

All I need is to forecast, review my past trades, do some backtesting and watch some content in order to maintain my skill at the same level.

That being said, there are days where I spend a lot more time, if I am motivated I can very easily get into a backtesting session and spend around eight hours on it, because I love it.

That being said, if you are not self employed and instead get paid on an hourly basis (which is what I do on the side), you will have to spend hours doing work in order to go paid and finish the task you were assigned, and you’d do the exact same workload as if you were home.

But here’s where the “good shit” comes in…

If you’re in a country where your living expenses are half what you used to spend it’s rather easy to reduce your workload (still recommend getting more hours done than the bare minimum) – so instead of working 8 hours you could work 6 hours rather easily?

Where to work?

That’s the interesting/challenging part, I do try to spend more money on airbnbs where I know I shall be able to get work done in the mornings.

One of the challenges of being a nomad is that you never really have an office, especially if you change location rather often and there’s no co-working space close by that offers a “hot desk” membership.

You need decent wifi in order to be able to do your backtesting and watch content, and that’s not a given sadly…

To be entirely fair, “developing” countries (Indonesia, Poland, Colombia, Lebanon,…) please don’t bully me for putting Poland there… the wifi is a hell of a lot better than in developed countries when it comes to working in coffee shops.

So the answer is:

I usually work at home during my “productive” hours – the first three hours – if there’s a desk, one of my requirements for airbnbs (highly recommend it),

I like outdoor standing (home made) desks

Then go out and do work at a coffee shop, however the work done in coffee shops is a lot less productive than at home, but I need the change of scenery – and it’s easier to keep doing work when you’re not the single one, otherwise the urge to go out and explore is super strong

Be a tourist for the afternoon, then get more work done in the evening at home or with a glass of wine!

That being said, if you are spending a month or more in one location, I highly recommend joining a co-working space, you’ll not only get to meet other self employed individuals and make friends but you’ll also get into a habit of working from there, which is great because you have a separation between home and work, something that’s not really possible when working from home.

Growth as a digital nomad

Now, as I just talked about, it’s rather easy to get work done as a digital nomad, you just have to say “fuck you” to your excuses and remember that you are only able to travel because of the work you do, hence, you need to prioritize the work over being a tourist.

That being said,

I don’t think living as a digital nomad is the best way to grow your business, instead, I would even argue it’s a bad idea

If you are aiming to scale your business, launch a new product, create a new offering, or even increase your returns as a forex trader or even learn an entire new trading style you’d be better off staying in one place

I’m not going to write too much about this, because I think Iman Gadhzi did a great job explaining it in this video, highly recommend it, shows the life about being a digital nomad, but after the six minute mark he talks about the downside of Variation and being a digital nomad.

You want to be repetive, you want to do the same shit, you want to have your routine, you don’t want to do new stuff every day, have a schedule, make sure you’re productive.

Anyway, hope you’re well and enjoyed this blog post!

Onwards,

Oh, and, if you’ve enjoyed this blog post, would mean the world to me if you left a like or a comment 😊

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