Algorithmic and Mechanical Forex Strategies | OneStepRemoved

Where Are the Trades?

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An issue that I personally had when I began trading was what to do when a trade did not present itself on the charts. After all, I wanted to be a trader and here I was…at my computer and ready to trade!

So…where are the trades?!?!

A few weeks ago, this issue came up with one of my clients. Essentially they had done the Strong/Weak Analysis and then mentioned, “but when I pair up the currencies and look at the charts I don’t find a single trade according to my strategy…very frustrating…what should I do?”

No doubt about it, when you are ready to trade but find no trades it can be very frustrating. But we simply cannot take a trade because we want to trade. That is one of the most illogical reasons to enter a trade that there is.

telescope-sam-1

Think about it this way…

Let’s say we are driving a long distance and getting extremely bored and frustrated because we are not there yet. And we know that up ahead someplace we have to make a left turn to get to our destination. Would it make any sense at all just to make that left turn right now out of boredom and frustration? Of course not. The same is true in trading. It makes no sense to enter a trade until the set up is there.

We must guard against boredom and frustration as it can lead to taking trades that made no sense earlier in the trading session when we were not bored. But, human nature being what it is, the more bored and frustrated we become, the better that low probability trade begins to look. So we take the trade out of boredom and when it moves against us, we become even more frustrated.

It is important to develop patience and discipline as a trader so we can wait for our set up to take place. (We must also be ready to accept the fact that our set up may NOT take place.) We must have a firm understanding of our trading strategy and not get into a trade until our “set up” takes place.

As an old trading axiom states, let the trade come to you.

For example, let’s say my trading strategy dictates that I buy a certain currency pair if it closes above 1.5153. If it is now trading at 1.5100, I will not enter the trade now because it looks like it might trade up to that level. Nobody knows what may or may not happen going forward on the chart. So, based on my trading plan, I would not consider an entry until it closed above 1.5153. That is letting the trade come to us. We will not enter a trade until it meets our criteria.

Bottom Line: No matter how bored or frustrated we become, that is never an excuse for entering a trade.

Based on our trading style we may have to wait hours or days or longer for our trade set up to present itself. Until that time, we must resist the temptation to enter a trade and always remember that cash is a position.

We get paid to wait…

 

RKrivoFX@gmail.com

@RKrivoFX

Four Hazards That Can Frustrate Quantitative Forex Traders

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Many traders shift to the quantitative side of the aisle in an attempt to get away from the emotional frustrations that discretionary traders are forced to deal with. However, quantitative Forex traders quickly learn that there are a plenty of frustrations with quantitative approaches as well.

While quantitative traders might not stress over whether or not they entered a position correctly, they are more likely to wonder whether their entire strategy is still viable. Instead of doubting their current positions, they spend their time doubting their backtesting results.

quantitative forex

There are a number of hazards that can frustrate quantitative forex traders, at the root of most of them is a failure to follow the rules of a trading strategy.

There was a recent post on Forex Crunch that looked at four hazards that Forex traders are faced with. While the article was interesting, I thought it would be more interesting to take a look at those same four hazards from a quantitative perspective.

News Events

News events are made out to be a very big deal on many different financial news channels. Many discretionary traders focus their entire strategies around things like crop yields or economic reports. Much of this is done with good reason, as those reports can affect prices.

As quantitative traders, our job is to follow the rules of our strategy, regardless of what the rest of the world is saying or doing. There is a tremendous danger to a quantitative trader’s mindset if he allows himself to be influenced by news events, even if those news events pertain to the markets he is trading.

Currency Interventions

Currency interventions are actually very similar to news events for quantitative traders. Both are unpredictable, and neither should impact your decision making process.

In the event of a government currency intervention, the most successful traders are the ones who are able to keep a level head and stick to their trading strategy. The traders who alter their strategies based on external events are usually the ones that blow up their accounts.

Trading Psychology

One of the trickiest hazards for any trader to deal with is their own psychology. One of the most complicated things about trader psychology is that it can be very hard to identify before it becomes a problem. After it is clear that psychology is an issue, it is probably already too late.

For quantitative traders, psychology issues generally stem from failure to stick to the rules of their strategy. If your system calls for you to wait for a bar to close before cutting a loss, it might be difficult to wait for that bar to close if it is already showing a massive loss. On the flip side, you might also talk yourself into ignoring a stop if your psychology gets in the way of a trade.

System Faults

Another hazard that can frustrate quantitative Forex traders are faults that exist within the systems that we trade. This could stem from any number of biases that invalidate our backtesting results. It could also stem from a bug in our programming.

In order to cautiously avoid any system faults, we must be constantly on the lookout for them. Even the slightest error could seriously jeopardize your profits.