Friday, October 22, 2010

Forex and the calculation of trajectory

When people first get into forex, they're typically fascinated and, at the same time, overwhelmed with the nearly endless complexities of technical analysis. Unfortunately, this is a methodology for trend identification that's based on historical chart patterns. Technical analysis is thus fundamentally flawed in that it attempts to do something impossible in our known universe: predict the future. It can't be done! What's more, history doesn't repeat itself. So past chart patterns have absolutely zero integrity relative to what's going to happen next in the forex market.

Yet, 80% of all new forex investors lose every penny they initially invest thanks to the flawed thinking behind technical analysis. People consistently make the mistake of believing that technical analysis will help them earn profits. Or they buy the latest trendy EA (Expert Advisor) and promptly throw away money on automation that does not work. There isn't a single EA that consistently earns profits. I buy them all. I try them all, cause I'd love to be surprised one day. But, the simple fact is that not ONE Expert Advisor consistently produces profits long term. Still, people love the idea of just magically pushing a button and making money. So, with eternal optimism, people buy these EA's and they lose money.

It's irritating and makes me angry.

I want to introduce you to another way to look at forex. In concept, this is going to sound profoundly simple. That's because it is!!!!!

What do we have in forex, if you strip away all the intricacies of technical and fundamental analysis? What is it that we see when we look at a chart in an MT4 platform? We see a moving piece of data: price. That's it. The price goes up (vertical) and it goes down (horizontal). And, you can observe these movements over periods of time (momentum/speed).

So, get simple. Stop thinking about global economies and who's rioting in the streets where, or what the economic conditions are in this nation and how it will impact some other nation...forget all that fundamental economic information. It's irrelevant to the mathematical problem of trajectory calculation.

Same is true for technical indicators. Forget channels and spinning tops and resistance levels. They mean nothing relative to the future.

Our objective is clear and really pretty simple. We're trying to calculate the trajectory of a currency moving through space at THIS PRESENT MOMENT, and we don't care about PAST patterns of movement. And we don't care about what causal effects may be prompting a currency to move up or down at one speed or another. We ONLY care about what's happening on that chart in this moment, cause THAT is where and how we make money.

Do you CARE "why" a currency goes up or down if you can simply identify the period of time where you can capture profits? I honestly contend that you will confuse yourself with the facts. You'll start introducing emotional and subjective thinking that screws up your trading decisions if you attempt to interpret world events or look at technical indicators.

You have to look at forex as a problem that's purely mathematical and there are empirical solutions because we actually have 100% true, streaming data. We actually get all we need to calculate the trajectory of a currency. It's simply the process of calculating the trajectory of price movement. Period.

When you look at your MT4 platform, what you should force yourself to see is just two fundamental things: price movement (which is vertical and horizontal), and the speed of price movement (which can be gauged in pips per X time frame). Forex provides us with two and only two variables which are 100% true at all times: price movement and time frame of X price movement. It streams into our MT4 platform in real time. This gives us the essential data to calculate momentum, which allows us to consistently identify trajectory.

Start thinking simple. Stop complicating your forex life with all the near infinite irrelevant things professional traders attempt to teach you. With effective money management, you can literally flip a coin and make a profit in forex. With even the most primitive trajectory calculation techniques, you should make big profits on a consistent basis. I teach this through my FX Power Hedge system, albeit an ongoing process of me trying to explain it better and better with every passing day. But hey, I try to teach it effectively and most traders who work with me "get it". My personal journey is told at www.fxpowerhedge.com. It may perhaps explain why I'm so hacked with the forex establishment and the ongoing rip off of every consumer trader, not to mention the seeming endless regulation they try to pile on top of us (but that we can get around if we know who to call when we open an account -- don't worry -- none of the latest regulations need affect you in any way).

You can profit on a consistent basis if you just focus on the data. Stick with facts. If you choose to learn through my system, I'll just ask that you work with me and let me try to explain it in my own way. I'm not a professional teacher, so I do what I can to explain this stuff. At the worst, I tell it like it is and I work very hard to liberate people from the constant BS of forex scammers. That's another reason why I only charge $29 bucks for my system, and I personally work with you as you learn the system in my own sometimes painfully slow way. But hey, as I said, I'm doing the best I can as a novice teacher, but successful trader.

The simple fact is that I got seriously hacked when I lost a lot of money because a major forex broker lied to me about technical analysis. I bought into it. I screwed up and I believed them. So I worked very hard to learn it. I paid them a disgusting amount of money to teach me.

Still, I lost every penny I put into no less than three different accounts that I traded with technical analysis. That's when I realized it was BS, and I got into the TRUE DATA behind forex. That's how I developed my system. I went on a pursuit of truth and I found it in the only 100% true data we get in forex. Mathematical calculations that are pretty simple related to trajectory of price movement. Because this is about reality. It's about what is happening now in terms of price movement.

It's not voodoo. Not guessing. Not predicting the future. Not hoping the past will repeat itself today in myriad complex chart patterns.

Just use your common sense. That's all I'm advising.

This is about data. 100% true variables that stream to you in your MT4 platform in real time.

This is not about guessing. Think trajectory. Trade smart. Win profits. You can do it.

Saturday, October 16, 2010

Forex: Free Margin Is Everything

I recently had a young lady purchase my system (www.fxpowerhedge.com), and she blew up a whole $50,000 demo account in two days. When she contacted me for support, it took me about half a second to ask her how many trades she made at the start and how much free margin she had allowed herself.

Her response? I quote, "What's free margin?" It was okay. I explained. It's not unusual for novice traders to buy my system and start out with actually zero knowledge about trading forex. So I explained to her the importance of free margin. Somewhere along the way in that series of e-mail exchanges, I realized that I probably haven't emphasized free margin requirements enough in my blog and in other communications.

Then, if you really stop to think about it, you realize that free margin is EVERYTHING in forex. It "can" be the sole determining factor between profits and losses (unless you happen to pick ONLY winning trades, which is tough since even my system has a 3% losing statistic). And while my system has been documented to be the most statistically successful in forex (no surprise since it is based purely on mathematics and the only 100% true real time data you get in forex), you can STILL face the need to ride out retraces.

If you don't leave yourself adequate free margin, boom -- you're out. You get a margin call and you lose your trade -- typically losing money that seriously hurts your account.

So before you get trade happy after purchasing my system or getting into forex with ANY approach (including flipping a coin, which I've discussed in other posts as being equally viable to technical analysis at its best), you MUST adhere to basic rules of free margin.

Step one here is to talk with your broker and find out their requirements. As the global economy has gotten more and more unstable, brokers have changed their free margin requirements. This simply means they require you to have MORE money available in your account and NOT tied up in trades than previously when we had a stable global economy. So get the exact information you need from your broker.

As a general rule, however, I always recommend at least 50% of your total account equity should be kept available as free margin. With smaller account, you may need to keep MORE equity available as free margin. Let's face it. If you have just a $300 account, then $150 in free margin may not protect you from much in the way of a small retrace.

This brings up the second issue: starting accounts with very small amounts of money. Not everyone has $5000 - $15,000 to open their initial account. I understand. That's real world. Not a problem, and I was there myself in 2006. I lost several $300 accounts in rapid fashion before I started figuring out the mathematics of my system and quickly tossing technical analysis out the window. It didn't take me long to realize you can't predict the future based on past data, and that's EXACTLY what technical analysis attempts to do. So trying to make money with technical analysis when I started out with my own $300 accounts was a total failure (for me).

It's impossible to predict the future in our known universe, and you surely can't expect PAST chart patterns to consistently repeat themselves. So I strongly urge you to forget technical analysis. But you CAN make big profits starting with just a $300 account. It simply requires some patience and intelligent execution of the FX Power Hedge in the early days. As I've discussed before as well, profit in forex grow exponentially, not incrementally. So it doesn't take long to build a small account into a much more safe large account. You simply have to avoid unwise mistakes.

I routinely share charts with my new traders where I demonstrate that it takes (on average) 10 to 14 days to double a $300 - $500 account. However, once you reach the $1000 account size (which yes, can take two weeks or so in today's market), you can then pretty routinely double that account in about 3 days. That's the best example of how growth is exponential in forex versus incremental. And that's the reason we have so many people who have gone from $300 to $500 as their opening account up to $15,000 in only 45 days on average. After that point, you "should" be clearing $1600 - $4000 per 24 hour cycle with my system.

THE WHOLE TIME: FREE MARGIN IS AN ESSENTIAL VARIABLE! You MUST keep at least half your account available as free margin right up through the $15,000 equity level. Only at that point can you start thinking about reducing the amount you keep as free margin to $5000 or so, and even then I err on the side of caution versus pushing the limit. Personally, I ALWAYS keep a minimum of 50% of my account available as free margin even on accounts bigger than $15,000! Believe it.

There's simply too much money on the line to take any risk of suffering a margin call. So it's one thing to get into forex with a system that pretty consistently identifies trends for small and big profits (yes, the profits vary one trade to another). It's something else to identify the trend, but then SCREW IT UP because you made too many trades and left yourself vulnerable to a margin call with even just a small retrace!

Whether you're using my system or technical analysis or whatever approach in forex, WATCH THE FREE MARGIN!!!! It's critical to your success. If you're greedy and you try to make every possible trade to build up profits fast, fast, fast, you can expect problems, problems, problems.

Forex requires patience and good judgment. Forex requires diligence and practice. Forex requires you to take intelligent risks -- not just guess and hope to get lucky. I know it's tempting to look at the declining value of the USD (for example) and just go all-in against the dollar, but that's simply not always going to work. Even the strongest of trends suffers from retraces. But okay, if you had $100,000 in free margin, and you were only trading one lot (which would be pretty ridiculous, but just as an example). That's a trade you could just leave in place and work off the Daily, Weekly and Monthly charts. Retraces, even reverses, aren't going to hurt THAT trade. I know that's an extreme example, but I want to stress that FREE MARGIN allows you to ride out all kinds of mistakes and market fluctuations. So it's a HUGE factor that doesn't get enough attention -- from me and everyone else teaching forex.

So protect your account with enough free margin to safely survive retraces. With a $300 account, I recommend at least $150 as free margin. That's the minimum.

Be smart in your trend identification methodology, and I obviously recommend my own FX Power Hedge system (www.fxpowerhedge.com). I'm going write another post soon about the core concepts of my system relative to the Six Degrees of Freedom in navigation as used by NASA. It's fascinating, and I'm working on what is, in essence, a white paper on charting the course of a currency in terms of price movement to explain why my system works from yet another point of view. So that's coming soon. Meanwhile, be safe. Make every trade count. Win big. Lose small. And NEVER have a margin call! Watch your FREE MARGIN!!!