When do we get there?

Saturday, August 30, 2008

Every beginning trader wants to know how long it will take to become
successful, but only a liar would say there’s an appropriate answer.
BY ACTIVE TRADER STAFF

Among all the questions submitted to Active Trader, one of the most difficult to answer is, “How long should it take me to become a profitable trader?” People are inclined to think in terms of the training or education that result in the ability to practice other professions:
You go to school to study a certain subject or enter some kind of apprenticeship, learn what you need to learn, graduate or get certified, and then you’re successful, or at least have the opportunity to be.

For example, if you get an undergraduate degree, spend three years in law school, and then pass the bar, you can practice law. If you put in the comparable time in medical school and pass your boards, you get to be a doctor. Of course, doing so doesn’t necessarily mean you’ll be a good, or particularly successful, lawyer or doctor, but such measures do provide a baseline of competency and the opportunity to earn a living.

Profitability is the only real “certification” in the markets,
and it is conferred on a diverse population, regardless
of educational background or formal trading.

In trading, however, there are no similar measuring sticks, and certainly no guarantees of earning a living. You might never be a successful trader no matter how much time and effort you put into it. The notion that most people who try to
trade end up losing money is probably true (although it is unverifiable), because most people enter the markets without enough knowledge or money and are scared out of trading for good after they experience a big loss.

In short, for all except the lucky, the only thing that can be said is that it will probably take you longer to become a trader than you think. And that’s if you have the financial wherewithal and perseverance to learn through first-hand experience.

Unlike law or medicine, there are no comparable degrees or professional certifications that brand you as someone able to trade profitably. Yes, brokers and money managers must pass certain exams (the Series 7, for example, for stock brokers) and file paperwork with the government, but these requirements
do not mean someone has made money in the past or will make money in the future. Profitability is the only real “certification” in the markets, and it is conferred on a diverse population, regardless of educational background or formal training.

Part of the problem is that “successful” can take so many forms in this context. What does successful mean? That your part-time trading is simply profitable? That your part-time trading outperforms the major stock indices? That you support yourself solely from trading? That you are rich beyond your
wildest imagination?

The other major problem is the absence of any kind of universal timetable. The time commitment for full-time law school and medical school programs is pretty much universal in the U.S., so you have a very specific horizon on which you’re operating. Trading has nothing comparable. Someone dedicated to a full-time job would have much less time to learn about the markets than someone who was able to devote all of his or her time to trading.

Also, there is the matter of aptitude, although it is impossible to quantify. Broadly speaking, those with analytical minds and mathematical proclivities might have a leg up on those who hate numbers and can’t stomach risking money. Still yearning for some hard numbers? When asked what it took to become a profitable trader, John Hill of system-testing firm FuturesTruth is credited with having said, “Five years and $50,000.” It’s as good a guess as any. But with all the variables and the differences from person to person, it’s better to think in
terms of learning slowly, trading conservatively, protecting capital, and accumulating experience over time. And if anyone tells you they can teach you how to trade in a weekend (or a week, or a month), take a pass.

Source : activetradermag.com

Currency Pairs Selling Their Personalities

Friday, August 29, 2008

Forex (Foreign Exchange) simply refers to the buying of one currency and selling of another at the same time. The forex market is the largest financial market in the world, even bigger than stock markets. Its daily turnover exceeds $3 trillion. The forex market is a global network of buyers and sellers of currencies, and is done over-the-counter (OTC), which means that there is no central exchange and clearinghouse where orders are matched. Forex trading takes place 24 hours a day, five and a half days a week, unlike stock markets which have specified opening and closing times for trading.

Almost all currencies can be traded through a forex broker. Currencies are represented by three letters, where the first two letters stand for the name of the country and the third stands for the name of the currency. Some of the most traded currencies are: the US dollar (USD), the Euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Swiss franc (CHF), the Canadian Dollar (CAD) and the Australian Dollar (AUD). A currency always goes up or down in value in relation to another currency. For example, when you simply say the US dollar is going down, it doesn't make much sense because the US dollar could be going up against the Australian dollar but down against the Euro. Hence currencies are always traded in pairs, and are quoted in a manner like this: EUR/USD. The first currency in the pair is called the base currency and the second is called the counter or quote currency.

The four most traded currency pairs are known as majors and they are:

EUR/USD
USD/CHF
GBP/USD
USD/JPY

As you can see from these pairs, the Euro, Swiss franc, British pound and Japanese yen are traded against the US dollar. As each pair has its own personality, it is essential for you to learn a bit more about each one, and understand the factors influencing their movements,

EUR/USD
The most recent 2007 Bank for International Settlements (BIS) survey shows that the most traded major currency pair is the EUR/USD with 27% of total daily volume. The EUR/USD is a great pair to trade for both new and seasoned currency traders. It is a very active pair with moderate volatility, which attracts traders to it like bees to honey. Its movements are quite smooth and there is enough action for day and short-term traders to capture meaningful profits.

EUR/USD tends to be negatively correlated to the USD/CHF and positively to the GBP/USD. What this means is that if EUR/USD goes up, then most likely USD/CHF will go down. This close relationship can be seen even on an intraday basis. In fact, this negative correlation is the closest relationship in the forex markets. You can take advantage of this relationship by opening both the EUR/USD and USD/CHF charts in your trading software, and compare both together. This way, you can have a better idea of where either pair could be moving next.

When you trade this pair, you need to be concerned with the bigger economic picture of both the Eurozone and the United States, and keep up with what monetary policymakers are saying about their country's economy and their domestic currency. The Federal Reserve (Fed) is the central bank of the United States and its current chairman is Ben Bernanke. The European Central Bank (ECB) is in charge of monetary policy for the the Euro, and its president is Jean-Claude Trichet.

USD/CHF
The 2007 BIS survey shows that trading of the USD/CHF constitutes only 5% of total daily volume, which makes it the least traded among the majors. Its bid/ask spread is usually wider than that of EUR/USD as a result, but don't let that stop you from trading this pair. It is still a popularly traded pair and its movements are negatively correlated to that of EUR/USD. Sometimes USD/CHF leads the movement of EUR/USD, other times it's the other way around. In general, the Swiss franc usually benefits from financial market or geopolitical turmoil as it is seen as a safe-haven currency.

USD/CHF tends to be influenced more by US fundamentals rather than economic and monetary happenings in Switzerland. The central bank of Switzerland is the Swiss National Bank (SNB) and its chairman is Jean-Pierre Roth. Switzerland relies heavily on export, like Japan and the Eurozone.

GBP/USD
GBP/USD, nicknamed Cable, is the third most liquid currency pair, according to the 2007 BIS survey, making up 12% of daily market turnover in the forex market. This pair is notorious for its wild and ultra-volatile movements, and is certainly not for the new trader. Price breakouts tend to be false and it is easy for new traders to get whipsawed by market noise. The British pound tends to move in the same direction as EUR/USD although that is not always the case. As the pound has a relatively high interest attached to it, it is seen as a high-yield currency.
The Bank of England (BOE) is the central bank of the United Kingdom, and Mervyn King is the governor. A series of interest rate hikes by the BOE in late 2006 and 2007 led the British pound to rise to the highest rate against the Euro in 2007.

USD/JPY
USD/JPY is the second most traded currency pair, with 13% of total daily volume according to the 2007 BIS survey. This currency pair is most actively traded during the Asian session, and has a tight bid/ask spread most of the time. Its movements are smooth and the pair reacts quickly to the risk environment in the financial markets. In times of risk aversion, the yen tends to strengthen against other currencies as global investors close out their carry trades.
The Bank of Japan (BOJ) is the central bank. Since Japan is highly dependent on exports, the BOJ has a strong interest in keeping the yen low compared to other currencies. On several occasions in the past, the BOJ has physically intervened in the forex market by selling the yen against US dollars and Euros, thus artificially weakening its currency for the sake of its export industry.

Summary
Each currency pair has its own characteristics and is influenced by different factors. It is important for a trader or investor to understand these characteristics and to trade or invest accordingly. You may find that one of them suits your own trading or investing style better, and in that case, just focus on what you think is best for you. There is always a currency pair out there among the hundreds which will catch your fancy and meet your goals.

Grace Cheng is the founder and editor of www.GraceCheng.com a leading financial website dedicated to the latest market news and opinions relating to forex and stock markets. She is also author of "7 Winning Strategies For Trading Forex" (2007, Harriman House) and the creator of the online PowerFX Course. She is actively involved in the financial markets.

Master Your Trading Mindtraps

Thursday, August 28, 2008

The popularization of speculative trading activity in the financial markets, partly due to the development of retail trading solutions offered on the internet, has created a new population of traders in the market. Most of these traders are non-professionals that are attracted by the potential to generate revenue quickly.

Falsely Created Expectations
Many novice traders may believe that it is very easy to make money, especially when they are trying a broker service using a free practice account.

However, if these traders manage to generate a sudden substantial return, it can lead them to believe that trading is an easy occupation - and one in which revenue can be quickly generated with little work on the part of the trader. For the inexperienced, one good pick can make it seem like market speculation might become the key to success and wealth.

Unfortunately, when these inexperienced speculators overtake this virtual investing environment and decide to start trading live accounts and risking real money on the market, the activity becomes much more complex. In many cases, the days of outstanding day trading performance come to look suddenly and distressingly like old souvenirs - it is an abrupt initiation into the pitiless reality of the financial markets.

Real Life vs. Practice
When new traders take the leap from the their virtual trading accounts to trading with real money, they are entering into the most difficult step of their initiation to trading: trading psychology.

In other words, while it may be very easy to trade when the risk of loss does not exist, when the trader's hard-earned dollars are thrown into the mix, his or her focus and price objective can go out the window. Often, traders using virtual accounts will feel relatively comfortable even when the market moves against the positions they enter. This allows them to keep their focus on their price objective and wait for the market to get moving in the right direction. Because there is little consequence tied to "virtual money", personal emotion does not interfere. Unfortunately, when a trader's actions come to affect the gain or loss of his or her own personal assets, that trader is less likely to behave in such a methodical way.

Emotions Can Rule the Trade
Emotions can be seen as the trader's worse enemies; they often lead to misjudgment and loss.

Feelings generate what psychologist Roland Barach calls "mindtraps" in his book, "Mindtraps: Unlocking the Key to Investment Success" (1988). Roland Barach provides a collection of 88 lessons explaining the pitfalls, such as fear and greed, that hold many traders back.

Greed
Greed can lead a trader to hold on to a position too long in hopes of a higher price, even as it falls. This emotion has been the main reason behind many trades that have gone from large gains to large losses. To thwart this emotion, try to take an objective look at the reasoning behind your positions. When one of your positions experiences a large run up, ask yourself whether the reasons behind your initial investment still remain; if not, it may be time to close or reduce the position.

Fear
Fear can prevent a trader from entering trades along with taking them out of positions far too early. If an investor is too concerned with potential loss and the risks that come with an investment, he or she can often be dissuaded from a good opportunity. Also, if a trader is more susceptible to fear, he or she may sell out of an investment far too early based on the fear of losing the gain they have made. In many cases, this can prevent a trader from cashing on a much bigger gain.

Paralyze by Analyze
Paralyze by analyze is an interesting phenomenon in which traders get so caught up in analyzing everything about a potential investment that they never actually pull the trigger on the trade. In this case, what often happens is that the investor will constantly question all of the little details found in the analysis in an attempt to perfectly analyze a situation. This is a truly unachievable task that can prevent a trader both from making monetary gains and from making experiential gains by getting into the trade.

There are a wide range of other emotions that can rule a trader but the important thing for any market participant is to recognize these emotions.

Acknowledge Your Emotions
All traders will experience at least one mind trap, but it is the very best traders that learn to recognize, understand and neutralize them. This process forms the foundation of any trader's training. Therefore, if you want to become a (successful) trader, you should first spend some time getting to know yourself and the particular mindtraps you tend to fall into. A skillful trader tends to have a strong desire to master his or her emotions and prevent them from affecting his or her performance.

Trading Nirvana
Traders are only human and, as such, perfection may not exist in trading. However, profitable trading can be achieved when a trader learns to manage his or her emotions. This will be easier for some than for others, but it is only through experience in the market that this skill can be developed. Therefore, before you can learn how to win, you have to take some risks (or at least get into the market) and learn to master the emotions that making (and sometimes losing) money stirs up.

by Nathan Halfon
Nathan P. Halfon is the director of institutional business development for ACM Forex in Geneva, a leader in online currency trading.

Risk Management 101

Wednesday, August 27, 2008

Risk management is the most important trading principle an investor can employ. A very important aspect to the psychology of trading is the ability to create and maintain a trading plan. As a famous saying in the market goes, "if you fail to plan, plan to fail." Planning is closely linked to the discipline of a trader. Experienced traders know that discipline and a trading methodology are key to long term survival in the financial markets.

Common for very new traders to make money on demo accounts, but many times these same traders lose when entering the live market because they fail to exercise discipline when real money is involved. Trading Forex is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the market you should consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.

Money Management Strategy
Below is a Basic and effective money management strategy that will help you control your trading. Your risk per trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%. I prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%.

1% risk of a 10,000 account = 100.

You should adjust your stop loss so that you never lose more than 100 per a single trade. If you place your stop loss 50 pips below/above your entry point.

50 pip = 100 1 pip = 2

The size of your trade should be adjusted so that you risk $2/pip. If the trade is stopped, you will lose 100 which is 1% of your balance. Another key component to money management is Risk-to-Reward Ratios.

Risk-to-Reward Ratio
The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system. Risk-to-Reward Ratio (in pips) and Win Ratio Required to Break Even (%)
40/20 (2 to 1) = 67%, 40/40 (1 to 1) = 50%, 40/60 (1 to 1.5) = 40%, 40/80 (1 to 2) = 33.5%, 60/20 (3 to 1) = 75%, 60/60 (1 to 1) = 50%, 60 /90 (1 to 1.5) = 40%, 60/120 (1 to 2) = 33.5%

Never risk more pips on a trade then you plan to make. It doesn't make sense to risk 100 pips in order to make only 10. Why? See below example.
Profit taking level (pips): 10
Stop used or pips at risk: 100

You win 10 times which makes 100 winning pips. You only lose once and have to give back all profits. Clearly a profit taking level of 10 and a risk level of 100 is not the best trading strategy. A more sensible strategy is 3 to 1. For example if you risk 10 pips you should be looking to make at least 30 pips in profit. Most traders analyze place sensible trades yet they tend to over leverage themselves, get in with a position that is too big for their portfolio, and as a consequence, often end up forced to exit a position at the wrong time. Trading in small increments with protective stops on your positions will allow one the opportunity to be successful in Forex trading.

Trading Discipline
Discipline is probably one of the most overused words in Forex trading education. Despite the cliché, discipline continues to be the most important behavior one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan. It's the ability to give your trade the time to develop, without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you've suffered losses.

Many traders come with false expectations of the profit potential, and lack the discipline required for trading. Short term trading is not an amateur's game and is not the way most people will achieve quick riches. Forex trading may seem exotic or less familiar then traditional markets such as equities. However, it does not mean that the rules of finance and simple logic are suspended. One cannot hope to make extraordinary gains without extraordinary risks, and that means suffering inconsistent trading performance that often leads to large losses.

Trading currencies is not easy, and many traders with years of experience still incur losses on a periodic basis. One must realize that trading takes time to master and there are absolutely no short cuts to this process. One of the worst blunders that Forex traders can make is attempting to trade without sufficient capital. The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading. He will also frequently be taken out of the trading game before he can realize any sense of success trading methods or patterns.

Protecting Capital and Minimizing Cost
The final aspect of risk management and trading discipline is protecting your capital. Forex traders who understand the importance of risk management and trading discipline usually understand the importance of protecting and preserving their capital. In the Forex market the easiest way for a trader to lose capital is through paying the spread. Some dealing firms charge extremely high spreads that can eat at a trader's capital without them noticing.

The solution to this problem is to find a broker that charges reasonable spreads and also search for trade rebate programs. Rebates are a fairly new concept in the Forex market, usually offered by Introducing brokers, a trade rebate is a way for a trader to be rebated on a small portion of the spread. Although a normal rebate is only a few dollars per standard lot, active traders soon realize how taking advantage of rebate is not only a smart thing, but also can greatly improve their profitability and overall trading success.

Simply put, the less you pay in spread the greater your chances are of seeing profitable trade returns and trading longevity. Competitive spreads, not over-leveraging and a disciplined money management strategy are the keys to being successful in the Forex market.
You can find more how-to and educational articles to improve your investing and trading each day on TradingMarkets.com.

Alexander Nekritin is a professional trader with over 8 years of experience. His specialties include risk management and system development. Alexander is the CEO of NCMFX, Inc., which is a forex introducing broker and an educational company that helps suit client?s needs in forex trading. He offers a Forex Broker Review to his clients that assists in learning the MetaTrader4 platform. Alexander has a degree with a concentration in Investment Banking and derivative instruments from Babson College in Massachusetts.

Forex may be chaotic...but some things are still predictable

Tuesday, August 26, 2008

I was just reading this post over at Trader Rich's Forex Project about a study at MIT that concluded that "treasury bonds are random, the stock market is correlated, and forex is chaotic." Firstly, let me say I haven't actually read the study in question, and probably never will. What I have read is Rich's summary of the study author's summary of his findings in Currency Trader Magazine. Also I've never studied chaos theory, higher math or physics. So obviously I'm extremely well-qualified to comment on this research in a thoughtful, informed, and in-depth manner. So here goes...

While I agree that a lot of forex market activity appears chaotic, and as soon as you come up with a predictive rule the market breaks it, there are still a few things you can predict with some accuracy amid all the chaos. And these are the things that keep me trading forex. Off the top of my head, they are:

• Trading range: I can say with reasonable confidence that the trading range of the EUR/USD tomorrow will be somewhere between 30 and 150 pips. Occasionally it may be more, occasionally less. But it will almost certainly not be 500 pips. Or 1000 pips. Nor will it flatline and refuse to move at all. Now a currency whose range varied from 10 to 1000 pips a day on a fairly unpredictable basis...that would be chaotic.

• Reaction to certain news events: some events will move the market. Period. What direction, and how many pips, can be hard to prediect. But I can predict with a high degree of confidence that there will continue to be news events that shake things up periodically.

• Periodic emergence of trends: very real, very tradeable trends will emerge from the chaos every so often, and in all likelihood will continue to do so. Just looking at a price chart without a single fancy indicator on it can tell you this.

• If you place trades long enough you'll eventually get one right. This is the principle behind the Martingale strategy. I'm not saying it's a good strategy to use, but it's based on a statistically valid and predictable observation. Chaos or no chaos, the odds will eventually swing in your favor.

• Buying some currency pairs pays you interest. Holding others costs you interest. This is what carry trading is all about.

• Someone who routinely takes on too much risk when trading in chaotic conditions probably won't last as long as someone who knows exactly how much risk they can afford to take.

• Someone with a clear head can combine observations like these into a trading strategy with decent odds of paying off in the long run. Someone whose outlook is clouded by wishful thinking, impatience, inconsistency, lack of discipline or impulse control, and any other problems of the compulsive gambler doesn't have a chance in the world.
• Forex can be boring for long periods. Whether that's chaotic or not I can't really say. But it's certainly predictable.

I'm sure the chaos theorists wouldn't disagree with any of this, and would point out why chaos theory allows for all of these possibilities. But I'm not writing for them - I'm writing for the traders out there like me who see a statement like "forex is chaotic" and think they must be crazy to keep chasing the market if the MIT scientists say it's a giant chaotic whirlpool ready to suck your accounts dry. So if I've made any of you feel a little better, I've done my job. Enjoy the chaos!
http://www.forexforays.com/labels/Carry%20Trading.html

Hedge Funds Risk Management

Monday, August 25, 2008

A Short Review of Hedge Fund Risk Management

When trying to maximize absolute returns, the importance of assessing and mitigating risk shouldn't be underestimated. Some memorable examples like LTCM and Tiger Fund not only show how heavy losses can be for some participants of the hedge fund industry, but also reinforce the perception that a good record of high absolute returns can mean absolutely nothing in an environment of improperly managed risk.

The most important lesson in terms of Hedge Fund Risk Management comes from the improper name of this kind of alternative investment: The idea that all systematic risks are diversified away is not applicable here, with the Hedge Fund returns, in reality, representing a combination of superior management of market inefficiencies and conscious exposure to some specific systematic risks. Only the systematic risks that are “undesirable” from a strategic point of view are diversified away. So, hedge funds, in reality, are not fully hedged.

Moreover, the adequate measure in terms of risk management exposure moves from the realm of excess risk in comparison to a benchmark to a total risk approach. Total return here is what matters for managers and investors and not a comparison of the hedge fund performance to some benchmark, like in other types of funds.

Also, the leptokurtosis (“fat tails”) and negative skewness associated to most class of hedge funds present a significant challenge to quantitative methodologies based on the assumption of returns normality (e.g. Riskmetrics classic approach), with the area becoming a very good study case for new approaches, like Extreme Value Theory (EVT).

Finally, with this complex framework in mind, the need for an initial and constant due diligence and managerial tracking surges as the most important issue from an investor's or fund of funds' perspective. Here, the obligation of full portfolio transparency (for legitimate investors, but not for the whole market) becomes mandatory for the successful risk manager, while, of course. other types of risk commonly non addressed through quantitative methodologies, (e.g. the liquidity barriers established through long “lock-up” periods) can't also be underestimated.

Once aware of the formal conditions offered by a hedge fund manager, knowing your manager's style in-depth and keeping frequent meetings and discussions based on updated full portfolio/single positions disclosures is the key to avoiding pitfalls as an investor.
An authoritative source in the subject is Jaeger, L., ed. The New Generation of Risk Management for Hedge Funds and Private Equity Investments, Institutional Investor Books, 2004.

What Every Forex Trader Should Know About ECNs vs. Deal Desks

Sunday, August 24, 2008

Many forex traders are concerned about going to an ECN broker and not trading through a deal desk. In this article I hope to shed some light about how this works and what to look for when selecting a broker to make sure that you don't become a victim of un-just dealing practices.

An ECN dealing model allows the many market participants to execute trades with each other through an electronic network. That's what an ECN stands for; electronic communications network. As you know, forex is a zero sum game so for every winner there is a loser; for everyone going long there is someone going short. So what an ECN does is match up your order with the order of another market participant. You are probably asking yourself the same question as I asked myself when I first found out about an ECN, will there be a seller every time I am buying and vice versa? The answer is that there are market makers and banks in the ECN that are consistently taking on trades and hedging their risk.

They may have their own buy and sell programs that they are trading on. These banks allow clients to get better liquidity and tighter pricing in the ECN. One of the most profound benefits of using an ECN is that you get anonymity, as the other participants do not see who is trading on the other end and cannot flag your account and trade directly against you. Another benefit to consider is that you can make your own market in an ECN; meaning you can place orders in between the bid and the ask price. If you are not willing to trade at a particular price point, you are able to place a bid or offer in between the spread in hopes of the ECN finding a fit counterparty – this is not a possibility with a deal desk.

Some forex dealing firms use a dealing desk approach. With this approach their desk acts as a sole market maker and takes all long and short positions on. The desk has certain risk parameters that have been set up and based on these calculations the aggregate net position of the dealing desk is hedged.

So, if the desk itself is net long or short a certain amount of EUR/USD for example, they will take a trade of that amount in the opposite direction with a liquidity provider. If all the clients are net long 1 billion EUR/USD, the desk will go long 1 billion EUR/USD and thus have a hedged position.

So for every pip they loose in aggregate to their clients they will win on their hedge. Its obviously not as simple as I just explained it but that's the basic nature of the dealing model. Some of the advantages of going through a deal desk are that you always know your transaction costs as the spreads stay fixed, you know who the counterparty will be every time in case you need to get issues resolved.

There are however some disadvantages as well, the dealer will always know who you are, and you can not go in between the bid and the ask.
Although many people are strong proponents of the ECN model which does seem a lot more transparent, the dealing desk approach can work just as well, as long as you are trading at a well capitalized firm with numerous deep liquidity relationships.

The bottom line is you want to make sure that everything about your dealing firm, platform and over all trading set up is a fit to your needs. However there are some things you need to check right away to make sure that you are trading at a solid firm, because what good are tight spreads if you cannot withdraw your money at the end of the year? It's always a good idea to research your forex broker before you decide which route you'd like to go.

In general first find out the firms capitalization. You can find this at http://www.cftc.gov/marketreports/financialdataforfcms/index.htm. You want to make sure that the firm is well capitalized, I would say over $25 million for adjusted net cap is a good start. This means that they have enough money to have solid liquidity relationships. Next I would actually ask the firm who their liquidity providers are. You want to make sure they are big firms like JP Morgan or Bank of America. Some firms may claim they have no dealing desk on their websites, but in actuality send all their order flow to another dealing desk, you need to be really careful about that. In this case you would be much better of using an IB as you can lower your transaction costs by receiving a volume rebate and trading at the source.

One way to check this quickly is an ECN will always have floating spreads. Spreads can not be fixed at an ECN. So if somebody is offering fixed spreads and saying they have no dealing desk. Guess what? They are going to another dealing desk.
Happy Trading,

Alexander Nekritin
Alexander Nekritin is a professional trader with over 8 years of experience. His specialties include risk management and system development. Alexander is the CEO of NCMFX, Inc., which is a forex introducing broker and an educational company that helps suit client's needs in forex trading. He offers a Forex broker review to his clients that assists in finding an appropriate clearing firm. Alexander has a degree with a concentration in Investment Banking and derivative instruments from Babson College in Massachusetts.

Trading vs Gambling

Saturday, August 23, 2008

What are the differences between trading and gambling?

Many people think that trading is similar to gambling. Is this really the case?
For example, let’s take a look at Black Jack. If you start with $10,000 gambling capital, placing bets of $100 per hand and play 100 hands per day, how long will you last? In the game of Black Jack, with Las Vegas Strip rules, a casino has a built-in advantage of 1.5% over the player in the long run. That means that on average, a player will lose $1.5 per any $100 he bets with. After 100 hands, on average he’ll be down $150. Starting with a capital of $10,000 a player would last about 67 gambling days. That is very similar to the previously described trading scenario. In such case I would choose gambling because at least I would be losing my money in a more pleasant environment.

I chose Black Jack for our example because it is the only casino game in which it is possible for a skilled player to increase his odds to such extent as to be able to beat the House in the long run. A skilled counter can obtain advantage of up to 1.5% per hand over the House in the long run. That means that such a player playing 100 hands per day and average hand being $100 could double his gambling capital of $10,000 in less than 50 days. Similar odds apply to trading stocks, with more potential for profit and less chances for being kicked out of a casino. In order to make it work for you, we’ll need to get the odds on your side. Now lets look at how we can extract as much profits from our trades as possible.

Understanding Trailing Stops
Once you are in the trade and the price has started moving in your direction, you need to extract as much profit as possible. Not being able to do so will make you a losing trader in the long run. How can a trader lose if he only takes small profits at a time? Profit is profit, isn’t it? Not exactly… Profit of $550 is not the same as a profit of $850. If such profits are followed by three losses of $200 each, profit of $550 will become $50 loss, while profit of $850 will become $250 win. Do you get my point?

Profits are always followed by losses and if the profits are small they will not make up for the losses that will eventually and surely follow. However, becoming too greedy can turn a small profit into a loss. This will make you lose money in the long run. The best solution to resolving these conflicts is to use trailing stops.
As the name says, trailing stop follows the stock price that is moving in your direction. For example, let’s say that we have bought two S&P 500 contracts at 875.

We will automatically put our stop loss at 1 point below the support line or if that is over our 4% limit we will put our stop loss at 871. The price starts to move upwards and reaches 876. We will now move our stop loss at $871.75. For every one point move in our direction we will move our stop loss 0.75 points up (or down if we were in a shortsell trade).

However if we were trading two contracts and the price has in our example hit 879 (4 points profit for ES or 10 points for NQ) we would sell one contract to protect our profit and for the remaining contract we would use trailing stop.
April 2004
By Zoran Kolundzic
http://www.wizardoftrading.com/go/emini.html

Technical Indicators In Forex Trading - Understanding Their Limitations

Friday, August 22, 2008

Forex traders often look at indicators such as Bollinger Bands, Pivot Points, MACD, Moving Averages and the such to help them determine where to enter or exit trades. Using technical indicators is fine, however many traders overemphasize their importance or just plain misunderstand them.

Many forex traders think that they can simply download an indicator and then mechanically apply it into their trading and do so profitably. This is just a plain illusion. Successful traders realize that there is a lot more to using indicators than just asking them to generate buy/sell signals or pin-point exact entry points. Technical indicators for them represent just one part of their trading strategy.

Let's take a look at some of the reasons why you should not put all your faith into those sometimes confusing little indicators.

Take Moving Averages (MA¡¯s) for example. They are "supposed" to show the direction of the trend. The most common and often used are the simple 200day MA, 100day MA, 50day MA, 35day MA and the 21day MA but they are only valid on daily graphs. Some forex day traders say that a good signal is when the 50day MA is crossed by the 13day MA and that when this occurs you should trade in the direction of the cross.

The problem with this (apart from the fact that it only works on daily graphs) is that these types of ¡°crosses¡± do not occur often enough for traders to exploit them. This can often lead to a situation where traders are seeing what they thought was a cross now reverse and uncross. Even worse, it can lead to a situation where day traders are "chasing" and trying to anticipate a cross. If you are doing this, you are distancing yourself from the market which you are trying to trade. Not only are you trying to guess what the price is going to do next but you are guessing what the indicator, based on the prices, is going to do next.

Other problems with technical indicators involve issues with the quotes and prices given to you by your broker. Forex brokers are market makers and as such different brokers will give you different quotes and prices at a specific point in time. Naturally, a different price could lead to a situation where different traders, trading the same market have the same indicators giving them different responses. That¡¯s how arbitrary technical indicators can be.

Finally, a lot of these technical indicators were developed by people trading the stock market. With the growth of computers and software packages that incorporate these indicators, technical analysis has become very popular and spread to other markets such as the forex market. What currency traders should be aware of however, is that as these indicators were developed in a time where real time information did not exist. As such, the limitations of technical analysis becomes even more exaggerated in forex trading ¨C not only is technical analysis an interpretation of historical events but it becomes even more so in the forex market, a market moved by real time events.

Conclusion:

Successful forex traders understand the limitations of technical indicators and realize that technical analysis should incorporate just one part of their trading strategy. In a recent international Forex market event visited by the major banks and institutions - the main players that influence the foreign currency market ¨C a survey was done to better understand what analysis they use. The results might be surprising to some tarders. The survey showed that a mere 26% use technical analysis and indicators compared to 41% who said they use fundamental analysis.
Jovan Vucetic is the Editor of Margin Strategies, an educational forex website, which reviews forex trading systems. Learn about different types of forex trading strategies including a purely mechanical trading system which does not require interpretation of the usual Technical Indicators.

Emissions Trading: The Good, the Bad, and the Ugly

Thursday, August 21, 2008

The green movement has created a plethora of buzzwords. One of the popular phrases is emissions trading. And for good reason. Businesses, traditional and emerging, will soon be affected by this indirect carbon tax depending on where they fall in the supply chain.

One possible regulatory system for limiting future carbon dioxide emissions is a cap-and-trade system. Under this system, permits to produce carbon dioxide emissions are issued by the government and then sold and traded in the marketplace. Total carbon dioxide emissions (represented by the number of permits) are capped, and the market is allowed to set the price of those emissions (as opposed to the carbon tax system where the price is set by law and the market determines the total carbon emissions). The underlying motivation of the system is to achieve desired emissions reductions in the most economically efficient manner possible.

There is a variety of emissions trading proposals that differs in the details and in how draconian the measures are. One of the biggest points of variation is how the allocation of permits is handled. The emissions trading scheme instituted in the European Union allocated permits in most countries by a process called grandfathering. In this scheme, permits were awarded (for free) to existing firms based on the portion of national emissions they had created in the past. Firms could then freely trade the permits they had privately been awarded (through brokers, mind you), or in spot markets, where goods are sold for cash and immediate delivery.

A criticism of this cap-and-trade system has been that it has created huge profits for some firms that have produced the most emissions in the past. These firms have received a large number of permits and have been able to reduce their emissions more cheaply than the cost of permits. This has allowed them to make a large profit off the excess permits they could sell. Other proposals have used an auction scheme of allocation where firms bid on permits to buy them from the government. Under this scheme, the auction price of permits is essentially a tax, with the proceeds going to the government. Some of you may already be raising an important point: How much additional costs (read: overhead) the politicians pile on this tax for their friends and lobbyists affects how well the process works, or does not work.

Of primary concern for business planning is how an emissions trading scheme will affect the price of energy and transportation fuel. Unlike a carbon tax, where determining the cost is relatively straightforward, it is a much more difficult and complicated task to determine the costs imposed by an emissions trading scheme.

The cost of permits, which determines the increase to the cost of energy and transportation, depends on several variables in emissions trading schemes: the number of permits issued, whether the scheme covers one nation or is international, whether the use of carbon sinks (natural systems to soak up and absorb carbon dioxide, such as planting trees) is allowed, or whether a company can pay for carbon offsets in a country not covered by the trading scheme to meet its limitation.

International schemes have the advantage that emission reductions can be made in those countries where they are cheapest, while firms in those countries can sell their permits to firms in other countries where the cost of reducing emissions is higher. Allowing for the purchasing of carbon offsets in countries not covered by the scheme can have the same effect, as will allowing for the use of carbon sinks.

Some proposed schemes, such as one recently proposed in the U.S. Senate, consider a safety valve mechanism. The idea behind this is to make the system a hybrid emissions trading/carbon tax system. Permits are issued to limit total emissions, and these are traded among firms as needed. However, if the price of permits rises above a certain threshold, firms can then buy excess permits from the government at the threshold price. This amounts to an emissions trading system with a price cap. The advantage of this scheme is that it gives policy makers flexibility. They can set the number of permits and the price cap in such a manner as to achieve whatever exact policy they want from a pure carbon tax to a pure emissions trading system, all with a single mechanism.

Depending on the specifics of the trading scheme, and the specific nature of a given firm, emissions trading represents either a potential profit or a potential cost. Under any emissions trading scheme, the costs of energy and transportation will rise, just as it will under a carbon tax scheme. Some firms will be able to cover these costs with profits made from selling excess permits, while others (particularly heavy industry) will be hit with even higher costs. The key is to know where you stand and try to keep your options open as much as possible since it is likely that in the next administration and congress, there will be either a carbon tax or an emissions trading scheme in place.

What all this carbon tax debate is pointing to is the urgency to begin planning NOW for emissions trading inevitability to help protect your business from rising energy and transportation costs.

Simplify Your Trading

Wednesday, August 20, 2008

I've found I trade best when I reduce the process to the bare essentials, with as few distractions and decisions as possible. The more moving parts a trade has, the more things there are to go wrong, upset you, make you doubt your trading strategy, and cause you start making changes at the worst possible moment. The more you can reduce the logistical overhead of any given trade, the less likely you are to become emotionally involved in it, and the more time you'll have to focus on the big picture and plan your next trade.

Here are a few strategies that might help cut down on the amount of time and energy you need to devote to a particular trade. (For those who've followed this blog for any length of time, apologies if I'm sounding like a broken record :-)

• Are you using a dozen different indicators and signals to initiate trades? Try combining them into a single signal that gives you a simple Yes/No answer about entering a trade. I do this by using MS Excel to calculate signals such as Bollinger Bands and moving averages and then layering them using the =IF(OR...) function, which tells me if any of my signals have fired. An additional advantage of using Excel is that it reduces the amount of time I need to look at charts, which leads me to my next simplifying strategy...

• Don't look at charts so much, especially ones with a dozen different indicators jumping up and down. Charts are great for many things, but as I've noted before, it can become very difficult to tear yourself away from them, and if you're not careful you can start spotting patterns in them that aren't there. The fact is, you don't need charts to trade. In many ways an Excel price table will serve you as well or better, if you know how to use it. I still use charts but primarily to identify interesting patterns that I then plug into Excel to test historically. I haven't actually entered a trade based on a chart in almost a year. (Yes, I know, I've discussed chart-based trades using Bollinger Bands, but these were actually initiated out of an Excel formula rather than looking directly at the chart. OK, so I guess charts are good for illustrating points on your blog as well!)

• Use a consistent exit strategy that requires as little discretionary input from you as possible. For example, you can combine your exit signals in the same way you combine your entry signals, giving you a simple, unambiguous Yes/No as to when to exit a trade. Or, always set the same fixed limit order to take profit at the same level, and stick with it. Or, consider exiting automatically at certain times of day; this is my exit strategy, and every day at 5:00 PM Pacific Time I either exit my current trade, or roll it over to the next day. Which leads me to...

• Combine your trades whenever possible. If you find you keep jumping in and out of the market with trades in the same direction, you'll save a lot on spread costs, and avoid the risks of slippage, bad timing, and poor execution by just trading once.

• Use the Fire-and-Forget Principle. Focus on pre-determining and automating all the variables in your trades (exits, stop losses, etc.) so that once you've pulled the trigger, you can walk away and the trade will take care of itself with no further attention from you.

• Are you trading multiple currency pairs that are tightly correlated? There's not much point, since they're all likely to move in the same direction at the same time. You might as well just pick one of them and cut down on the distraction of following multiple pairs. This excellent article at Investopedia identifies pairs that are closely correlated, either positively or negatively. For instance, the EUR/USD almost always moves in precisely the opposite direction as the USD/CHF pair. So if you're making long EUR/USD trades and short USD/CHF trades simultaneously, you might as well just choose one or the other, because you're making practically the same trade (and paying more on spread costs, too).

• Trade less often. It's much easier to overtrade than undertrade, so odds are you're overtrading.

Hope these suggestions help simplify your trading and boost your profits...if you have other ideas about how to streamline the trading process, please feel free to post them in the Comments below.

Money Market: Eurodollars

Tuesday, August 19, 2008

Contrary to the name, eurodollars have very little to do with the euro or European countries. Eurodollars are U.S.-dollar denominated deposits at banks outside of the United States. This market evolved in Europe (specifically London), hence the name, but eurodollars can be held anywhere outside the United States.

The eurodollar market is relatively free of regulation; therefore, banks can operate on narrower margins than their counterparts in the United States. As a result, the eurodollar market has expanded largely as a way of circumventing regulatory costs.

The average eurodollar deposit is very large (in the millions) and has a maturity of less than six months. A variation on the eurodollar time deposit is the eurodollar certificate of deposit. A eurodollar CD is basically the same as a domestic CD, except that it's the liability of a non-U.S. bank. Because eurodollar CDs are typically less liquid, they tend to offer higher yields.

The eurodollar market is obviously out of reach for all but the largest institutions. The only way for individuals to invest in this market is indirectly through a money market fund.

Which Forex Strategy Is Right For Me?

Friday, August 15, 2008

Learning to trade Forex is not an easy task, but by no means is it difficult either. Learning to trade Forex does not require a great intellect or a college degree. Doctors have failed as traders and construction workers have become millionaires. Trading is all about discipline, determination and perseverance.

The key is to understand who you are as a trader and trade to your strength. Leveraging your strength can be magnified by deploying the appropriate Forex trading strategy. There are hundreds, if not thousands of Forex trading strategies out there. Logic will tell us that there is a currency strategy out there which leverages our strengths. It is not a one-size-fits-all world. To immediately cut to the chase and take away the magic, it all comes down to two basic Forex strategies; trend-following and range-bound. All Forex trading strategies use a variety of indicators and combinations, MACD, Moving Averages, Stochastic, Chart Patterns, Candlesticks, Pivot Points, Fibonacci ratios, Elliott Wave analysis, Bollinger Bands and the list goes on and on. Let¡¯s take away the magic again. These indicators and studies are merely measuring support and resistance and trend in the Forex market.

But which strategy really works? This is the age old question?

First, we must understand who we are as traders. Does our personality fit the pip sniper mode or does our disposition attract us more towards swing trading. Finding your trading personality will mean studying and experiencing the different time frames and associated Forex trading strategies. Over time you will notice a higher level of success and/or comfort trading one style over others. Pay attention! The market is telling you where your skill is more capable of extract consistent profits for the market. This is why journaling is so important to your Forex trading routine.

Secondly, if you are using someone else¡¯s strategy, a most of us are, deploy this strategy without change until you fully and completely understand all aspect of the strategy through back-testing and actual experience. As I was told; dance the dance you have been taught until you learn a dance of your own!

Don¡¯t fall into the trap of jumping from strategy to strategy or combining different strategies when the one you are using doesn¡¯t yield immediate success. This is only a recipe for disaster. Take the time to really understand the trading strategy. Study the components individually so a deeper understanding of the strategic mechanisms is mastered.

Above all, know when and when not to deploy this strategy. You will not find consistent success implementing a trend following system in a range-bound currency market.

So what¡¯s the right strategy for you? It is simple, the one that works. It doesn¡¯t matter if it is complicated or simple, trend-following or range-bound, uses Fibonacci studies, pivot points or both. If you understand the components, internalize its use, and drive consistent profits into your trading account, then you have your Forex trading strategy.

It doesn¡¯t matter what the experts say, your account balance is the ultimate judge and jury for your Forex trading strategy.
Todd Judkins specializes in teaching real people how to trade the Forex market for long term success by focusing on strategic, mind and money skills. He is a currency trader, educator and success coach to traders. Are you now ready to take action? To begin training with Todd immediate, online Forex trading visit: http://www.forexjourney.com and sign up for his FREE WEBINAR and FREE Forex Webinar.

The opportunities of trading the Forex hedged grid system

Sunday, August 10, 2008

I have seen the hedged grid system been used successfully (and highly unsuccessfully) over the last few years. Unfortunately the failures tend to discourage traders from taking advantage of this great system. I have found that the failures are mainly due to ignorance, impatience and greed (common reasons for trading failure).

In a nutshell the grid system uses the following methodology. You start by buying and selling a currency. When the price moves a predetermined distance (grid leg) you cash in the positive leg, leave the negative leg and buy and sell again. Sooner or later the system goes positive and you would then cash in when it is positive.

This is a brief summary of the content of our free hedged grid trading course available on expert-4x.com. Please refer to this course for more details of how money is made. The attraction is that the system is reasonably mechanical, can be programmed and does not take much supervision as exclusively entry orders are used.

Money is made when the price retraces 100%, 50%, 33% at various levels. This starts looking like a strategy that supports the Fibonacci concept. The grid system is also based on the nature of the market to trade sideways 80% of the time and to trend 20% of the time.

The dangers are that what if the price does not retrace and continues to trend. The Grid system can not make money in a trending market – full stop. One has to realize that. You therefore need Strategies to minimize damage during these periods:-

Firstly I have found that the biggest mistake made by traders is that they select a very small grid leg sizes e.g. 20 to 30 pips. This is a recipe for disaster. The trick is to use big leg sizes between 150 and 300 pips. What this does is that it sometimes turns a trending phase into movement in a sideways market. I would typically use 300 pips for the GBPJPY and 150 pips for the EURUSD for instance.

Secondly there is no rule that says that the legs have to be the same size. So I change my leg sizes in trending markets to be even bigger. If I started with 150 for the 1st leg I would go to 200 for the 2nd leg and 250 for the 3rd leg etc. This makes sure that I am carrying less loss making transactions in a trend.

Thirdly – sometimes it is wise to increase the number of lots with the trend compared to the numbers against the trend in a good trend. However be aware of having the same number of sell and buy transactions. All you will have done was lock in your current status in a 100% hedge.

Fourthly – This is the biggest change and most important one that I personally have made in my grid trading strategy. Always cash in all your transactions when your system is positive and when the price reaches the end of one of your grid legs. By cashing in you are reducing the risk of carrying negative lots in a trending market. This also gives you an opportunity to re-assess the market conditions.

Fifthly:- Cash in a start again is always an option. One of my strategies is to cash in all my open positions when the 3rd leg of my grid is reached and start again. Experience has taught me that this is a short term pain that goes away very quickly and is soon forgotten.

People that have traded the grid system will immediately see how the above approaches will reduce the risks of exponential losses building up in a strongly trending market.
Mary McArthur is a Trader associated with expert-4x.com. She provides the main input into the page rated Forex Trading Blog www.forextradeoftheday.com and assists with the educational and trading alert services provided by www.forextradersupportservices.com. She is considered an expert of the hedged grid system and has co authored a free grid trading course on www.expert4x.com . She can be contacted at marymacarthur@expert4x.com.

Learning about carry trades

Thursday, August 7, 2008

One of the areas I've been pretty ignorant about in the world of forex is carry trading, which relies on interest rate differentials between currencies to profit from interest rather than fluctuations in the actual currency prices (though those can certainly contribute nicely to any interest gains if they trend in the right direction).

As usual, the Oanda forums proved to be a trove of information on the subject: currently I'm in the midst of this thread, and am finding the posts by Interest-Hawk and the excellently named HAPHAZARD_TRADING particularly interesting.

Interest-Hawk describes the steady profits he's been making with a long position in the GPB/JPY pair, which will pay out just over $22 a day per lot in interest. As he describes his strategy, "I trade using FXCM (a topic for another thread) and they require a 2% margin to earn interest. For me, that comes down to every 100k lot costs me $2000. 2k per lot, simple as that. Each of those lots then pays me exactly $22.70 per day, every day of the year in rollover interest. That breaks down to doubling my initial investment (In interest ONLY) every 88 days."

That got my attention pretty quickly, as did HAPHAZARD_TRADER's list of the currency pairs in his interest-positive basket:

"GBP/CHF, LONG
GBP/JPY, LONG
AUD/JPY, LONG
USD/JPY, LONG
USD/CHF, LONG
EUR/HUF, SHORT, for those who like 100 pip spreads

Not all at once and all the time, but I'll keep trading them so long the INTEREST keeps rollin in."

Carry trading is probably not a great strategy for those who are impatient, short-term in outlook, or addicted to the thrill of freqent trading. That said, I do see an opportunity for a hybrid strategy that combines trading and carrying, with the potential to benefit from both. Here's how I would go about designing it:
• Identify a pair like GPB/JPY with a high interest differential
• Create a rule-based trading strategy for it as I would for any other pair, but with the exception that...
• This strategy would focus only on interest-positive trades: in the case of the GBP/JPY, long trades.
• Once I had a working trading strategy that I felt comfortable with, regardless of interest, I'd then start placing long trades with it. If all went well, I'd be gaining interest while hopefully profiting from uptrends in the GBP price as well.

In this type of hybrid system, any losses in trading would be offset by gains in interest, and in the best case, interest and trading gains would coincide to generate significant profits...especially when daily compounding enters the picture.

Another strategy is to open inversely correlated positions that are both interest-positive. This way, any losses in one currency's price would be (roughly) offset by gains in the other, while both earned interest. This is the idea behind a balanced basket of interest-earning currencies.

But I'm still very new the whole carry trade concept, so there's a still a lot to learn. If I've made any amateurish errors here, any carry traders in the audience are welcome to correct them in the comments below.

TRADING: A MIND GAME

Tuesday, August 5, 2008

You must change your mental attitude first from a normal person to that of a speculator. Almost all traders I have met, except a few successful ones who really made millions and billions trading in the market, simply waste all their time trying to learn the easiest part in perfection, like about how to read data and charts, and trying to perfect entry and exit skills, etc. Trading is a mind game and without having a right frame of mind, it is a losing game even before it starts. Training a trader�s mind is the first step for any successful trader but almost all new traders neglect that part and that explains why more than 95% of traders are a failure in the long run.
Acquiring the knowledge of the market is not difficult for anyone with average intelligence after a few years of hard study in the market. But it is neither the level of intelligence nor the knowledge that decides the outcome of the market operations of a trader. It is the decision making process that is so hard for most traders to overcome and that is the main reason for a success or a failure for all the traders.

Some find it easy to make decisions and stick to it and most find it so hard to make decisions and stick to it. Unfortunately, any decision making process in trading is a pain-taking process and humans tend to avoid pains and go for pleasures even if for temporary ones. Assuming one has acquired enough market knowledge and acquired one�s proven trading system (this is the second most important element of success in trading, in fact. An edge in any system is based on the quality of info one has, charts being only an info of secondary quality not the best one)

Through studies and research, a trader faces the task of making decisions to put this knowledge and system into practice. Then, how many traders can honestly say they can commit their ranch when the trade is suggested by their own system (given that trading is just a chance game) and let the profit run for weeks and months when their system tells them, and how many can manage to cut the loss as a routine process when the situation arise.

It all sounds so easy when saying it but so difficult when doing it affecting real money in the market. I still do not sleep well when I am running position because even if the profits are running into a few hundred dollars and the system is telling you to carry on, there is no guarantee that the profit will turn into a yard or two in a month time, and it may even turn into a loss in a day or two when something unexpected happens.

A painstaking process in real sense. The pain is not knowing what will happen in the future and in fear of losing. So at the end of the day, assuming one has decent trading system and market knowledge and decent info, it is ultimately how disciplined and how well that trader can take the pain of making right decisions at the right time that decides the outcome of the trades. Hence I call trading a mind game.

When I interview prospective young traders, I always look for disciplined and strong-willed person as my first priority as long as one has decent education, but strangely in many cases, it is some kind of genius or half-genius with lots of brains with no disciplines who turn up for an interview thinking only bright people can make good traders.

In fact, I always try to pyramid while position trading medium-term once I am convinced of a new medium-term trend emerging. Like in USD/JPY position trading 135-132 as an initial position, adding in 132 and 129 areas. Same for AUD/USD and EUR/USD with similar strategies. But sitting on positions and watching the counter-rallies costing truck load of money is not easy job to do and causes lots of pain all the time.

Most traders even among experienced ones cannot bear that pain and give up too early. But there is no other way to make a big money and we have to bite the bullet and "sit and accumulate" as long as the medium-term trend is intact. That is why I always believe psychological aspects of trading is far more important than anything else in successful trading. A mind game like those bluffing game of poker.
Entries and exits can never be "irrelevant" for any trader for any purpose. It is just that psychological aspects of trading are much more important than entries and exits, and decisive for the success or failure of a trader in the long run. Perhaps exits are more important than entries because any perfect or near-perfect entries are possible only in hindsight.