Dan on January 18th, 2006
I’ve been following the SuperWoodie CCI indicator for my forex trades, frequently entering during the early Asian session. So far this has shown to be profitable, with yesterday being the best so far (70 pips). I find that I tend to exit early when watching the 5 min chart for pullbacks. Right now that seems to be the only thing I need to work on with this strategy.
I’ve also been working on probability analysis of the markets. Over extented periods of time the market drifts towards a random set of data, but isn’t quite there. For example, 55% of the time the next bar will close opposite the current one (eg if the current bar is up 55% of the time the next will be down). In a truely random system that figure should be 50%. Perhaps my data set isn’t large enough? Or perhaps the market isn’t random as some claim. I’ll be taking Statistics I this semester. This time around I’ll be paying attention and hopefully I’ll learn some useful tools to help analyse the market.
Another thing I’ve been working on is analysing currency pair correlations. I compare two pairs and see how their movement is related. Pairs with one currency matching (such as GBPUSD and USDJPY) tend to follow the same pattern with some deviation. I’ve found that some pairs move before others! This acts as a predictive movement and can help forecast the next move. I’m still in the early stages of reviewing the indicator I’ve programmed but it looks very promising. I started a thread with charts to discuss it here on StrategyBuilderFX forums.
Dan on January 12th, 2006
I have opened a virtual account with Collective2 so that my options trades are automatically tracked by a 3rd party. The public can view closed trades but I will almost always have open trades that you don’t see. So far in the first two days the account is up 15% thanks to APPL (position nearly doubled) and LPL (still open, position up over 50%).
There is a 14 day trial period available for those who want to track my live trades as they happen. Assuming my results continue to be very good I will be going live in about a month. I’m using my main strategy of trading news, earnings, etc and looking for companies with strong fundamentals that have a high probability of rapid growth.
Dan on January 8th, 2006
A few people have requested that I discuss investing so that’s what I’ll do here, starting with more specific long term goals.
Goal #7: 5 Year Financial Goal. In five years the vast majority of my income comes from a combination of rental properties, forex, and stocks/options investments.
Here’s a breakdown of each:
1. Real Estate
Real estate is the cornerstone to the majority of riches in this country. Property value here in Rochester is expected to grow 5% a year, but that doesn’t matter much to me. Why? Because cash flow is king. Rental property is where the money is. When you receive a check every month for doing very little work you know you have it made. You could even hire people to do any required work for you! I can go on and on about how great real estate is due to leverage, cash flow, appreciation, tax depreciation, etc but there are plenty of resources out there for that. I’ll post some reviews of my favorite real estate books soon.
I’ve been researching real estate investing for years now and my book smarts on the topic are top notch. I even bought a rental property a few years ago. The problem is that I never finished the necessary work on the house to rent it so it has been sitting vacant. My goal is to have it rentable a month before the end of the spring college semester, thus giving me time to get some students in there before they leave for summer.
2. Forex
I’ve been researching the forex (foreign exchange) market since September now and I think my learning has plateaued. The only thing I haven’t researched enough is the impact of fundamentals since they have a much smaller overall impact than on the stock market. I decided when I started learning about forex that I wanted a 100% technical system. Right now the two I like the most are the Super Woodie’s CCI indicator and a MA crossover strategy. Both require significant attention to the markets that I haven’t been able to give to properly test the systems. I need to develop some alarms that will alert me to trade signals. I feel that forex is a great place to make (or lose) money quickly due to high volatility and high leverage. My live account is now funded with $200 so hopefully I’ll have time this week to start doing some active trading with real money.
3. Stocks/Options
The stock market is an obvious place to turn for investing. My problem with it is the misconception that earning 10-20% per year is excellent. It’s horrible! Why would I want to earn only 10% a year on something as risky as stocks when I can buy real estate that will earn me the same amount in cash flow alone? In my opinion correctly analyzing individual stocks and then using the proper instruments can net you far far far better returns then that. To give you an idea what I mean, Google (GOOG) options held for less than one day this week (Thursday to Friday) could have earned you a return of 130%, Yahoo (YHOO) 100%, and Apple (AAPL), IBM, and others earning 50%+. That’s more in one day than most mutual funds earn in 6 years!
The problem is that mutual funds are not allowed to use the tools that are offered to individual investors, such as margin, short sales, and leveraged options yet their performance is what everyone looks at as a benchmark. My strategy isn’t set in stone yet but I am currently researching news, stock splits, CANSLIM, and other trading methods. Options will play a large part in whatever system I decide to use.
This week provided a great example to why you should have your money in different markets. The Fed implied that they will stop raising interest rates for the time being. This caused opposite results in the forex and stock markets. The dollar dropped in value about 365 pips vs the Euro in less than 2 days. With 100:1 leverage that means an investment in the Euro would have returned 365% (or a margin call on long dollar positions)! The stock market loved the news and grew this week producing some excellent results. Real estate investors are also happy since stopping rate increases means better mortgage rates.
Dan on January 3rd, 2006
Earlier this week I had a bit of a blow out on the Oanda account. I lost $6500 (6.5%) in one day and then another $1500 (1.5%) the next. I also lost about 5% more on the NF account. I realized that the one thing missing from my Oanda BoxOptions strategy was real research and mathematical pricing. While I understand how the system works I wasn’t looking at the underlying math used to calculate the price and how to calculate if I was taking a low risk trade.
I received some Barnes & Noble gift cards for Chirstmas and headed down to the store. I picked up a book about the math behind options (Options and Options Trading by Robert W. Ward
). The first few chapters cover basic prob & stat but then it delves into the good stuff. I can probably use the review anyway. Once I’m done reading my current book (The Neatest Little Guide to Stock Market Investing by Jason Helly) I’ll start on the options book. I also picked up a few other unrelated books that I will discuss in another post.
Education is the key to success. Hopefully I’ll be able to educate myself well enough to make money. I’m also learning about normal stock options and have been playing with a virtual account on OptionsXpress. Since stocks are much less volatile I will not be posting daily updates as with my Forex demos but may post monthly results.
I’ve changed my NF demo account strategy as well. I tried the SuperWoodie CCI before and liked it a lot, but didn’t stick with it on the demo I tried. I’ve decided to try that again. Today on my first trade I made 51 pips ($504 after swap)! I actually exited early. The market slowed a lot so I exited, however it continued up and is currently 15 pips higher. I’m still happy with the trade. We’ll see how it works out.
Dan on December 29th, 2005
I received cash from most of my relatives as Christmas gifts. I decided to use all of the money, plus some of my own, to open a real Forex trading account. I will be starting with a whopping $200. If the account is up after a month of trading I’ll start adding more on a regular basis.
My Oanda demo account had a very interesting day today. I started with two gains totalling around $400 (0.4% gain), then followed that with a $2000 loss (2%). I finally ended the day up almost $500 (0.5% gain). As I refine my BoxOptions strategy I find it easier and easier to make money with them. Taking advantage of the lagging volatility factor in BoxOptions pricing shifts probability in my favor. I hope to contine to hone this method over the next few months. If I continue to make reasonable gains I may write an ebook or seek out other investors in family and friends. That may be jumping the gun but it’s always good to plan ahead.
My North Finance demo account dropped a bit more today. I had two losing trades. I started trading this account in the afternoon, after the majority of the day’s movement had taken place. A lesson learned.
As always, graphs of my demo accounts (and soon my live account) can be found at http://www.thedanexperiment.com/forex-trading/.
