That’s only partially true.

Short term trading is never only about analytics. It is also about systemic risk control. Your analytics can change from day to day, moment to moment. In fact flexibility and open mindedness are the key attributes of all skillful short term traders. However when it comes to risk control your system must be well thought out and rigid as a column of steel. You can experiment all you want with your trading setups, but deviate from your risk control rules and you will always pay a heavy price. It doesn’t matter if you run a 500 dollar retail FX account or 5 Billion dollar hedge fund like LTCM. Ignore the rules and the market will smite you.

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Although everyone has a different tolerance for risk, here are my day to day rules.

1. Leverage


In trading there are two ways to generate leverage. You can use high margin or you can have a high turnover. I prefer the later. I don’t trade with more than 10:1 margin and generally keep my ratio to 5:1. That means that for every $10,000 in my account I will not hold more than a 100,000 unit position at any given time. My goal is not to “press the pedal to the metal” on every trade but rather to make money one pip at time. My plan is take many trades throughout the day and average 20 pips/day or 100 pips/week. If I can do that consistently that means I am generating $25,000 of profit per year for every $10,000 of capital at risk. That would be pretty damn good.

2. Stops


I trade with fixed stops of 20 pips – regardless of whether I am trading yen, pound or any other pair. I know this ignores the whole issue of volatility but I don’t care. It simplifies my trading enormously. I trade with fixed stops of 20 and fixed take profits of 20. During a typical day when I am busy with a million things this system has saved my hide more than once. I NEVER WIDEN MY STOPS, but I may bust out of the trade early if I don’t believe it has the power to reach my target. Over a long period of time and after doing thousands trades I learned that 20 points is the perfect amount of risk for me. If I get stopped at -20 it’s because I am dead wrong in my analytics or my timing.

3. Position sizing


Again I opt for simplicity. I generally open with 1 unit (so if I had 20K in my account my opening trade would always be 100,000 units) but if I am extremely confident in the trade I will double my bet and trade with two units from the start. That’s the maximum position sizing I allow myself. I never add to a losing position but I will double my bet to two units if I get stopped out and I am confident that the trade should work and I was just early. If I get stopped on 2 units I step back and bring my size back to one because I am clearly wrong on the trade.

4. Day Limits


Generally I never reach them, but if I am down 5% on my equity (-$500 on 10K account) I stop trading for the day. There are a million factors that could be responsible for such a drawdown but the single most important action at that time is not to try to figure them out, or to try to get the money back, but to simply STOP TRADING. This is the most common reason why most short term traders blow up their account. When it come s to trading the Hippocratic oath is a pretty good rule to follow – “first, do no harm”. ]]> http://www.bkforexadvisors.com/boris-schlossberg/forex-trading-tips-a-system-for-success/feed/ http://www.bkforexadvisors.com/kathy-lien/video-interview-favorite-trade-and-comments-on-data/ http://www.bkforexadvisors.com/kathy-lien/video-interview-favorite-trade-and-comments-on-data/#comments Thu, 18 Mar 2010 13:17:28 +0000 Kathy Lien http://www.kathylien.com/site/?p=2963 I was on the Business News Network this morning giving my instant insight on the U.S. data and my favorite trade calls.

Click on image to access the video

On a side note, I am kicking myself for not posting an official call because the moves have become deeply oversold in these currencies. However I think USD/CAD is going test parity (currently at 1.0105) and EUR/GBP is could fall to at least 0.8915 (now 0.8975).

FOMC Statement March 16, 2010

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing ( upgraded “from deterioration in the labor market is abating”). Household spending is expanding at a moderate rate but remains constrained by high unemployment ( upgraded from weak labor market), modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly ( upgraded from appears to be picking up). However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level( concern about housing returns) , and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period ( here are the words again). To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month ( Fed ending asset purchases). The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability ( New!).

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral ( Fed ends liquidity facilities!).

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability ( Hoenig elaborates on dissent).

Short term trading is a combination of watching the news and watching the charts, so I have a lot of monitors in front of me. At the office I work with a 3 monitor set up, a laptop and a double screen Bloomberg terminal that K and I share. We also have 2 flat panel TV sets - one tuned to Bloomberg TV the other to CNBC.

At my home office where I do most of my short term trading my set up is a little different. I have four separate computers. Now before you gasp at the cost, let me say that these are the cheapest, most basic boxes that you can buy at TigerDirect.com or a million other computer dealers for less than $300 each. Why do I use so many computers? Because Windows sucks. I want my application to stay up for days (sometimes I will keep a computer running for a month). The only way to achieve that in Windows is to allocate one application per computer. So at home I have one computer that only runs news, one computer that runs my trading software, one computer that just shows me the 15 minute charts for euro, cable and yen (that one has a 32 inch screen) and one computer on which I do my day to day work. Overall I sit in front of 7 screens in an L shaped desk configuration.

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Meanwhile, just to give you some perspective K trades from her tiny Macbook laptop – but she does not scalp furiously every single day like I do.

What do I use for news? For $9.99 per month you can watch all three CNBC channels (Asia, Europe and US) online. I highly recommend it. There are plenty of critics of CNBC who think it is nothing but financial blather, I disagree. Occasionally there are some very interesting insights from the guests, especially on the London show which I watch every day. But opinion doesn’t matter. For trading purposes I watch CNBC for one reason only – to determine what is the Big Story of the day. For example when they reported that the Greek bond auction went off well, I instantly go long euros and the pair rallied 50 points over the next half hour. So when it comes to trading I watch CNBC for the headlines, not the opinions.

For a pure newsfeed I like nothing better than the Dow Jones newswire that comes free if you have a GFT account. I am not certain what other brokers provide it as well, but for my money nobody covers the currency market better than DJ. They will print the latest rumors from the dealing rooms, breaking eco numbers and a running analysis of price action 24 hours a day 5 days a week. I have a 22 inch screen devoted just to the DJ feed.

To see the latest eco data results I use the forexfactory calendar which has the simplest and cleanest interface and will usually post results within 5 seconds of the release. Dow Jones also publishes the eco data, but its scrolling interface can make it difficult to read in the heat of the battle.

Finally charts. I use no indicators on my charts, so almost any chart will do. However, I am partial to FXTrek by Intellicharts because they have a very easy to use interface that allows me to demarcate the chart both vertically and horizontally ( for time and price). However at $100/month that’s an expensive luxury if you don’t need its full array of functions.

That’s it despite all the hardware, my daily trading setup is relatively straightforward. Each day I attempt to ask and answer only two questions –What’s Happening? And How Will It Affect Price? Get that answer right and you’ll be on your way to being a successful short term trader. ]]> http://www.bkforexadvisors.com/boris-schlossberg/forex-trading-tips-the-fx-toolbox/feed/ http://www.bkforexadvisors.com/kathy-lien/kathy%e2%80%99s-cnbc-interview-upside-for-the-yen/ http://www.bkforexadvisors.com/kathy-lien/kathy%e2%80%99s-cnbc-interview-upside-for-the-yen/#comments Wed, 10 Mar 2010 13:30:44 +0000 Kathy Lien http://www.kathylien.com/site/?p=2953 I was on CNBC Squawk Box Australia last night talking about the outlook for the Japanese Yen as well as the European currencies:

After hitting a 9 year high of 1.3124 last week, the rally in AUD/NZD is losing steam. I should have posted about this earlier, but I think there is still room for the currency pair to fall.

Last week, the Reserve Bank of Australia raised interest rates by 25bp to 4 percent but hinted that from here on forward, they will begin to slow down their pace of tightening. Having already doled out 80 to 90 percent of their planned rate hikes, the focus will now turn to the RBNZ who has not even started to raise interest rates. Granted, the Australian economy is doing far better than the New Zealand economy, it is time for New Zealand to catch up. In January, New Zealand turned its first trade surplus after 7 months of consecutive deficits and in February, business confidence hit a 10 year high. Yes my friends, a TEN YEAR HIGH. With numbers as strong as these, the Reserve Bank of New Zealand will most likely grow more hawkish, paving the way for a rate hike later this year.

Furthermore, 25% of New Zealand’s exports go to China and 25% go to Australia. Therefore the combination of higher commodity prices and strong growth in NZ’s most important trade partners should encourage the RBNZ to adopt a more optimistic tone when they meet later this week.

Finally AUD/NZD presents a good risk reward opportunity from a technical basis. It is currently trading at 1.2975 and if it rallies back above 1.31, the uptrend has resumed. Otherwise, there is no major support in AUD/NZD until 1.2775