Minibahn Mafia Azzuri Template

During a relatively quiet market, I created another template for the Mafia. I call it "The Mafia Azzuri". The M5 and M15 templates can be downloaded HERE.

The Wait Is Over: Here It Is... The Minibahn Mafia!

Please note that The Mafia is designed to be used by more ADVANCED TRADERS, and I make no apologies to aspiring traders that do not possess the 3M's and 3C's (mind, method, money management, competency, contacts and capital) who in all likelihood will get all confused.

Timeframes

M5 and M15.

Money Management

Sound money management is essential to sustainable and profitable trading. Though I shall not cover in great lengths on the subject, I will share my own money management technique.

On any given trading day, my daily equity at risk is capped at 3%. I further divide this into 10 to 20 trades, meaning that I risk only 0.15% to 0.3% of my equity on any given trade.

Trading Rules

1. This is an ADVANCED intraday trading strategy adapted for trading using the M5 and M15 charts. The indicators you will need as well as the template I use can be downloaded here: http://www.ircforex.com/indicators/602-minibahns-indicators

(a) b-clock_(h-m-s).mq4
(b) Stoch Candle OverBought-Sold.mq4
(c) OnChart_Stochastic_Channel_(FL_MTF).mq4
(d) Pivots_Daily_vMB1.0.mq4
(e) Pivots_Monthly.mq4
(f) Pivots_Weekly.mq4
(g) OnChart_Stochastic_Channel_(FL_MTF)_vM5.mq4

(h) Bands.mq4

2. Determine bias by observing the day's opening price relative to the daily pivot point. If price opens ABOVE the daily pivot point, then bias is bullish/long. If price opens BELOW the daily pivot point, then bias is bearish/short.

3. Look at the "slow" stochs (360,180,180 on M5 and 120,60,60 on M15) firstly. If the %K (green) line is above the the %D (red) line, bulls are in control... therefore, look for opportunities to buy support. Naturally, it's best to wait for the crossover AND when both lines are above the 20% level of the stoch channel. For shorts, wait for the opposite signal.

4. Use the "fast" stochs (30,10,10) to time your entries and exits.

5. Good entries at e.g. D3, W1 or Mo1 levels will present opportunities to perform multiple trades... to continuously enter and exit until the "slow" stochs signal a reversal.

Remember:

• If price is at PP, watch for a move back to R1 or S1.
• If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).
• If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).
• If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).
• If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).
• If there is no significant news to influence the market, price will usually move from P to S1 or R1.
• If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.
• R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).
• Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.
• In a strong trend, price will blow through a pivot line and keep going.
• Once support or resistance is broken, the level in question becomes its opposite, i.e. former support becomes resistance and former resistance becomes support.

** It is important to understand, however, that these are probabilities and not certainties.

6. Stop-losses (SL) are totally unnecessary if you've adhered to all of the above rules. Also, should you be caught by premature reversal trades... employ the standard cost-averaging techniques. Step back, take a look at the next two pivot levels and calculate the appropriate trade size and R:R to re-set the positive expectations.

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

End of Another Productive Week

It's the end of another productive week. For my EJ M5 sub-account, the 10 day return works out to be 145.3% from 333 trades executed, with 321 wins and 12 losses for a win rate of 96.4%.

Looking forward to the weekend for I am in need to rest and sleep. Hoping to come out charging again next week. :-)

Who's Screwing Who? Forex Brokers Lose Too!!

This was reported some time back, and totally forgot to blog about it. It's commonly thought that Forex Brokers hold the keys to money making machines, are 'evil' and are out to screw their own clients. It would surprise many therefore, to learn that many U.S. Forex Brokers actually LOST money in July 2009. Anyhow, here's the full article... enjoy!

Source: Forex Magnates

July was a bad month for all brokers. With the exception of GFT, Oanda and MB Trading all brokers lost money that month. It’s also very interesting to see that Gain Capital lost over $12 million dollars – I’m not aware of any reason behind that. It is in-line however with the $50 million loss so far that Gain reported couple of weeks ago in its IPO registration documents.

Stuttgart Banker Divining Currencies Is World’s No. 1

By Bo Nielsen (Source: Bloomberg)

Oct. 5 (Bloomberg) -- During the most volatile period for global foreign exchange in more than 15 years, a state-owned bank in southern Germany bested the currency forecasters at the biggest banks and trading firms.

Gernot Griebling, head of bond and economic research at Stuttgart-basedLandesbank Baden-Wuerttemberg, and his team of five currency strategists beat competitors at 46 firms to become the most-accurate forecasters for the six quarters ended on June 30, according to data compiled by Bloomberg. They outshone analysts at bigger firms by holding fast to such views as an early call for the dollar’s decline against the euro in the first half of 2008, even when their predictions went against the mainstream.

“Your track record has nothing at all to do with the number of people working for you,” says Griebling, 48, who navigates global currency markets from the glass-and-concrete headquarters of LBBW, a firm with less than a quarter of the employees and less than a third of the assets of its German rival Deutsche Bank AG, the world’s biggest currency trader. “You have to have the courage to stick to your conviction, to deviate from the consensus view.”

Griebling predicts that the dollar will trade at about $1.42 per euro until mid-2010 compared with $1.4625 today, as investor concerns over rising U.S. deficits and debt offset optimism about the prospects for an economic recovery.

Ranking Method

The ranking was based on quarterly predictions made at the beginning of both 2008 and 2009 for seven major exchange-rate pairs. Scotia Capital, part of Toronto-based Bank of Nova Scotia, Canada’s third-biggest bank, was second overall, followed by BofA Merrill Lynch Research in New York and Toronto-Dominion Bank’s TD Securities unit in Toronto. Frankfurt-based Deutsche Bank came in fifth, while Zurich-based UBS AG, the second- biggest currency trader, was No. 22.

LBBW prevailed at a time when financial turmoil and an economic slump sparked the most-violent swings for major currencies since at least 1992, as measured by JPMorgan Chase & Co.’s benchmark JPMorgan Volatility Index. The dollar plunged in the first half of 2008, only to rally later in the year as the collapse of Lehman Brothers Holdings Inc. in September froze credit markets and sent investors flocking to the safety of the greenback. The yen rallied in the second half of 2008 as traders reversed risky bets funded in the currency. In 2009, the dollar and yen started out strong against other major currencies and then weakened as central bank actions and $2 trillion spent by governments around the world on fiscal stimulus efforts helped to stabilize the global economy.

‘Spectacular Misses’

The dollar weakened 4.5 percent versus the euro in 2009 through today. The yen also fell 3.6 percent against the European currency to 131.34 yen in the period and was little changed against the dollar at 90.64.

The turbulence made even the top forecasters prone to missing the mark: The average margin of error of the 10 top- ranked firms was 6.6 percent compared with 3.5 percent when Bloomberg last ranked currency strategists in 2006, a year characterized by global growth and stable financial markets.

“It was a very difficult time to be a forecaster,” says Daniel Tenengauzer, head of global foreign exchange strategy at BofA Merrill Lynch in New York. “We had some spectacular successes and some spectacular misses.”

Tenengauzer, 41, predicts that the dollar will weaken to $1.50 per euro by year-end and then strengthen to $1.28 by the end of 2010 as the Federal Reserve begins a series of rate increases to keep inflation in check.

Discerning the Trend

While no one foresaw the scale of last year’s market moves, some forecasters, such as Griebling’s team at LBBW, were able to correctly discern the broad trends that guided currencies.

As 2008 began, the U.S. dollar was strengthening against the euro. The dollar was $1.4592 per euro on Jan. 1, 2008, compared with $1.4967 per euro on Nov. 23, 2007, its weakest ever. A Bloomberg survey of 43 forecasters published on Dec. 27, 2007, when the euro-dollar rate was $1.4626, showed that analysts expected the dollar to continue strengthening through September 2008. The strategists cited a narrowing deficit in the U.S. current account, which is the broadest measure of trade, and predicted that the threat of inflation would keep the Fed from cutting benchmark rates.

Griebling and his team didn’t share that bullish view. The LBBW forecasters had been tracking the decline in the U.S. housing market. They predicted that the deepening slump’s impact on consumer spending and growth would be bigger than most market participants expected and would curb the dollar. In 2007, the housing downturn had already triggered $80 billion in writedowns at financial firms, a figure that would grow to more than $1.3 trillion within two years.

Borne Out

“We had been big bears on the U.S. economy and the dollar for a long time,” Griebling says. LBBW predicted that the dollar would strengthen against the euro in the second half of 2008 as the U.S. recession would drag down euro-zone economies.

LBBW’s view was borne out: First, the dollar lost value against major currencies in the first half of 2008, with the greenback touching $1.6038 per euro in mid-July. Then, the U.S. currency surged in the latter part of the year, reaching $1.2330 per euro in October. The dollar ended 2008 at $1.3971 per euro, not far from Griebling’s year-end forecast of $1.39 per euro.

What LBBW and most other currency forecasters failed to predict was the magnitude of the currency swings and the unprecedented financial turmoil that brought them about.

Not Foreseen

No one foresaw the severity of the deterioration in the U.S. economy and credit markets in the first half of 2008 that would lead the Fed to cut rates four times between January and April and prompt the government-brokered takeover of Bear Stearns Cos. by JPMorgan. Nor did anyone foresee Lehman’s September 2008 collapse, the U.S. bailout of insurer American International Group Inc. a month later and the rounds of global rate cuts soon afterward, all of which sent investors stampeding back into the dollar.

LBBW wasn’t immune to the turmoil roiling financial markets. The bank, predicting a “substantial loss” for 2009, last week said it will shed about 2,500 jobs, or a quarter of its workforce, by 2013 and slash assets by 40 percent as part of a reorganization plan. It posted a loss of 2.1 billion euros in 2008.

Some analysts were thrown off track by the roller-coaster market. Gerry Celaya, chief strategist at Redtower Asset Management, entered 2008 as the biggest dollar bull among strategists in the Bloomberg survey, forecasting a $1.30 euro- dollar rate for June 2008.

Wrong Reasons

Celaya, who placed third overall in the 2006 ranking, slid to number 40 on this year’s list after the U.S. economic rebound he was betting on in 2008 didn’t materialize.

“We were surprised by how consistently bearish people were about the dollar in the first half of 2008,” Celaya, 44, says. “And when the dollar strength finally came, it was for all the wrong reasons.”

Callum Henderson, Singapore-based global head of currency strategy atStandard Chartered Plc, came closest to predicting the dollar’s swings against the euro. In January 2008, he forecast a euro-dollar rate of $1.49 by March, making him among the biggest dollar bears in the Bloomberg survey. His $1.38 prediction for where it would stand at the end of September was among the most bullish for the U.S. currency.

Past Patterns

In making his forecasts, Henderson says he studied the greenback’s moves during similar periods: 1989 to 1992 and 2002 to 2004. Both times, the dollar weakened as the U.S. economy lost steam before surging against major currencies as recession damped global growth, forcing central banks to cutrates. Those patterns told him the dollar would slump initially in 2008 and then rally.

“As soon as the global credit crisis happened, we knew there was going to be a dollar rally, but no one could have foreseen the speed with which it happened,” says Henderson, 44.

Some market watchers searched for new ways to gauge currency relationships in late 2008 as the flight to quality sent investors pouring into the dollar.Henrik Gullberg, a strategist at Deutsche Bank in London, abandoned his standard forecasting measures and instead looked at weekly data on the amount of dollar reserves being held at the Fed by foreign central banks.

Flight to Quality

Gullberg discovered that from late 2008 through the beginning of 2009, the dollar tended to gain against major currencies when foreign central bank accounts at the Fed rose and vice versa, even though that hadn’t been the case historically.

“We followed safe-haven flows very carefully; there was nothing else driving currency markets,” says Gullberg, 36. “The only thing that mattered was risk aversion. All other models went out the window.”

The financial turmoil in late 2008 also prompted traders to get out of so-called carry-trade bets, in which they borrowed funds in yen and U.S. dollars at low rates and then invested them in currencies of countries such as Australia, where returns were higher. The Dollar Index, a gauge of the greenback’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, had its biggest weekly gain since 1992 in October 2008.

“This was a huge structural change,” says Camilla Sutton, director of currency strategy at Scotia Capital in Toronto. “It became pretty clear that the de-leveraging was impacting currencies.”

Revisiting Risk

The period of dollar and yen strength lasted from July 2008 to March 2009, when signs of stability in the global economy persuaded investors to venture back into stocks and bonds denominated in foreign currencies.

As of mid-September, most of the top forecasters predicted that the dollar would weaken at least through the middle of next year amid rising U.S. deficits and debt, and that investors would gravitate to more attractive investment opportunities elsewhere.

Sutton, 38, sees the greenback losing value as the U.S. Treasury swamps the market with bonds to fund $12.8 trillion in pledges to prop up the economy. The euro-dollar rate will return to $1.60 and the dollar will fall to 85 yen by the end of 2010, she says. Standard Chartered forecasts the dollar at $1.58 by the end of next year.

Deutsche Bank’s Gullberg says the correlation between central bank reserves and the dollar has been broken as stability returned. Now, using models that look at traditional gauges such as interest rates, he foresees declines in the dollar to as low as $1.60 per euro by year-end as investors seek out higher-yielding assets in other currencies, and as the Fed resists raising rates anytime soon to ward off the threat of inflation.

“Dollar strength is dependent on an aggressive Fed, and so far there has been very little sign of that,” Gullberg says.

EJ M5 Update

I've managed to double my sub-account dedicated to trading EUR/JPY on M5. Quite pleased with the results. The 8 day return is 104.5% or USD1.045 million.

In all, I executed 234 trades with 227 wins and only 7 losses for a 95.89% win rate.

The earlier analysis for EUR/JPY to reach 139.00 by the end of the year still stands for now.

Ten Lessons I Have Learned in Working With Traders

by Brett N. Steenbarger, Ph.D. (Source: Traders Log)

When I sat down to write this article, I thought it would be challenging—but useful—to distill over 20 years of trading experience—and 25 years of specializing in brief therapy—into ten lessons that I have learned while working with traders (including myself!). In that time, I’ve written two books on trading and worked with dozens of professional traders at a proprietary trading firm. What has this taught me? Let’s break it down:

1. Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.

2. Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.

3. Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.

4. Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings.

5. Training is the path to expertise – Think of every performance field out there—sports, music, chess, acting—and you will find that practice builds skills. Trading, in some ways, is harder than other performance fields because there are no college teams or minor leagues for development. From day one, we’re up against the pros. Without training and practice, we will lack the skills to survive such competition.

6. Successful traders possess rich mental maps - All successful trading boils down to pattern recognition and the development of mental maps that help us translate our perceptions of patterns into concrete trading behaviors. Without such mental maps, traders become lost in complexity.

7. Markets change – Patterns of volatility and trending are always shifting, and they change across multiple time frames. Because of this, no single trading method will be successful across the board for a given market. The successful trader not only masters markets, but masters the changes in those markets.

8. Even the best traders have periods of drawdown – As markets change, the best traders go through a process of relearning. The ones who succeed are the ones who save their money during the good times so that they can financially survive the lean periods.

9. The market you’re in counts as much toward performance as your trading method– Some markets are more volatile and trendy than others; some have more distinct patterns than others. Finding the right fit between trader, trading method, and market is key.

10. Execution and trade management count – A surprising degree of long-term trading success comes from getting good prices on entry and exit. The single best predictor of trading failure is when the average P/L of losing trades exceeds the average P/L of winners.

Well, I’ve already hit ten and I have at least ten more I could jot down. Number 11 would be that successful performance mentors have content expertise in their particular domain. What I mean by that is that teachers of concert musicians themselves have experience as musicians; basketball coaches invariably have played the sport themselves. You learn trading by seeing your mentor trade and by having your mentor observe your trading. The right mentorship goes a long way toward shortening learning curves.

Figure it out: what proportion of baseball players, golfers, actresses, chess players, singers, or bicyclists can make a consistent living from their performance activities? Is trading really so much easier than those activities? The stark reality is that expertise in any performance field is the exception, not the rule, requiring dedicated practice and training. If you are emotionally prepared for the learning curve—and excited by the challenge—you are well ahead of the game. Start with finding the Three M’s: right methods, markets, and mentors. Those are the foundation of success, upon which you build skills and experience. Enjoy the journey!

Special Focus: Japanese Yen

As a technical intraday trader, I seldom talk about fundamentals, perform any analysis or make long-term forecasts. So, here's my first published attempt at it. :-)

We've witnessed the appreciation of the JPY by more than 50% in effective terms since the start of the crisis. Naturally, many are eager to know the new administration’s stance on JPY.

Japan is not a particularly open economy; notwithstanding the significance exports have played in the last 10 years. As such, foreign exchange levels, especially in the current situation, are particularly important.

Off-late, there's been several statements by Japanese officials making clear that the Japanese government does not intend to pursue policies favouring JPY weakness and this, in a FX market looking for ‘stories’ has triggered a strong appreciation to the JPY.

However, my view is that the USD zone still seems very resilient, especially as markets for risky assets stop for breath after the significant improvement in the past six months. So, I'm in favour of a moderate depreciation of the JPY in the next six months.

My call? By year-end... EUR/JPY to reach 139.00 and USD/JPY to reach 97.00.

To support this view, I've dedicated a USD1 million sub-account to trade EUR/JPY. The 5 day results have so far been encouraging. With 3% daily at risk (USD30,000), I've managed to make 107 trades with 105 wins and only 2 losses, for a 98.13% win rate. This translates to a nett return of USD606,137.59 or 60.6% in 5 days.

Here's a look at EUR/JPY on M5. So, far... I've resisted the temptation of shorting resistance levels and instead have focussed my trades on going long at support levels. Though EUR/JPY essentially finished the week at the same level it started the week at, a 60% return on "long-only" trades is pretty encouraging.

Looking at the M15 chart, I'm reasonably comfortable that having bounced off MoS1 (129.02)... EUR/JPY should at the very least be a long to MPP (132.24) which is my 1-month target. So, I'll be buying any dips going forward with this immediate target in mind.