Category Archives: Money Management

The Pillars of Trading in Modern Markets – Part 4: Psychology of the Markets, August 21, 2014

Hello Friends,

Today I continue my mini-series of 5 articles with a new article. I will complete this series on Friday.

This week every day I am publishing a brief article. The focus of the series is on the “Pillars of Trading in Modern Markets”.

In Yesterday’s post I have written about Money Management.

Today’s topic is considered complex, difficult to master and somehow boring by traders. But remember that in life is very typically that the things we do not focus on are those we need the most!

20140821_bandwagonI am going to talk about Psychology. Psychology is paramount in trading. Some authors and traders bring this to an extreme saying that Psychology is 100% of trading.
Why? If you think about it, you can have a good method in place and risk and money management well honed, but still if the psychology you bring into the market is not okay you are still going to lose money. I do not think is 100% because you can somehow incorporate the market psychology and good practices into the method, but Psychology remains the most important element in trading.

First of all, how do I define the Psychology of the Markets? This is the response of traders and participants in the market, considered as an aggregate group of individuals. Market Psychology is reflected in price action and in price structure.

I am more concerned with the latter, price structure. In fact, I am totally convinced that price structure in modern markets is overwhelmingly dictated by the activity of some classes of algorithms, trading on all the major instruments characterized by very high exchange volumes.

Note: Entry levels, as well as support and resistance levels and areas are mainly identified by the interaction of classes of algorithms in the weekly, daily and 4-hour charts. When there are no planned or unplanned events that affect the psychology and emotional engagement of the market, prices are “quietly” driven into areas of target or resistance and support indicated by the algorithms. The proof is in price itself, when you learn how to spot the “footprints” of algorithms on price.

The algorithms that “govern” the markets are understandably monitored by mere mortals, i.e. human beings. These algorithms are taken down on Friday afternoons and stay inactive through Monday mornings. This is the reason for erratic, low-participation markets we see at the beginning and the end of the trading week.
Only decisions by Central Banks, significant macro-economic changes and geopolitical crisis or some other dramatic events do actually take price action away from the control of algorithms.
Algorithms then “readjust” pretty quickly.

In one of my trainings I demonstrated how modern algorithms have “internalized” the psychology of the Market. I prove this point by applying the rules that I use to study the effects of algorithms on price back to price data well before computers were invented! And do you know what happens? These rules work! They apply back to the 70s, 60s, back to the beginning of last century showing that they model something “fundamental” about the markets.

Note: I also believe this is the very reason why algorithms trading the markets are capable of flying “under the radar” and very few professionals are able to spot them. The reason is that they have incorporated “the way market works”, e.g. the price structure that is generated by the market psychology, the average reaction of market’s traders taken as an aggregate group. I find these considerations very fascinating. And these are not theories! I use these considerations every day in my practical analysis and trading.

You can find a recent example here.

See you tomorrow for the last topic.

Till then stay tuned, I will talk about the Psychology of the Trader.

Have a great day.

Giuseppe, ~FibStalker

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The Pillars of Trading in Modern Markets – Part 3: Money Management, August 20, 2014

Good Morning traders,

Today I continue my mini-series of 5 articles with a new article. I will complete this series on Friday.

Every day I publish a brief article. The focus of the series is on the “Pillars of Trading in Modern Markets”.

In Yesterday’s post I have written about Risk Management.

20140819_money_managementToday’s topic is very, very important. Is there a way to reach our objectives in trading?

Yes, there is and that happens through Money Management. When I mention objectives I mean profits levels and return rates generated by our trading activity. Now could there be anything more interesting than this?

So let’s have first a clear definition of Money Management in place, and look at what exactly is it about. Money management is the discipline and practice that allows managing the position in order to optimize risk management and magnify returns.

You can become very creative with Money Management. I have studied it in-depth and even wrote a research paper during my Master Thesis in Finance, and that helped in filling a gap in academic research in Finance.

It is possible to “play” with Money Management techniques and generate hundreds of different ways to calculate position sizing, entering partial positions at multiple price levels and taking partial profits at a different levels too. It is also possible to take a money management technique and literally “superimpose” it on top of any trading method, although within certain limitations and boundaries.

Money Management is really the way you can reach your objectives in trading, provided that:

  • they are realistic and supported by a quality trading system
  • your risk appetite is within reason
  • you use proper money management techniques
  • you get aggressive with other people’s money, i.e. the gains you extract from the markets

Note: I never risk more than 1%, even if I use trading methods and entry that have a 90% reliability rate (Oh yes! Such methods do exist: take a look at the FibStalker Trading Method coupled with the unique FibStalking Timing Technique, which allows procedural testing of areas of support and resistance).
It is possible to “supercharge” profits keeping the risk low on your own capital, which also serves keeping in “check” your emotional capital (which depletes at a faster rate than your financial capital).

Risk and Money Management are closely related. They help and serve each other; each one helping the other in reaching their full potential and objectives. So position sizing and money management help reducing risks, especially when you enter a trade in legs, drilling down into the smaller time frames; Risk Management contributes to reaching trading objectives, mainly reducing the exposure of your hard-earned capital, to the maniacally-depressive psychosis of Mr. Market (always remember PPC, #1 rule.)

I have talked about Money Management in my last Webinar on FXStreet.com which can be watched here:

https://elitefive.wordpress.com/2014/08/14/advanced-risk-management-webinar-recording-now-available-on-fxstreet-com-august-14-2014/

See you tomorrow with the next topic.

Till then stay tuned. My topic for tomorrow will be the interesting Psychology of the Markets.

Have a great day.

Giuseppe, ~FibStalker

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“Advanced Risk Management” Webinar recording now available on FXStreet.com, August 14, 2014

Dear Friends!

The webinar I offered in the morning at FXStreet.com is now available for you to view at your own convenience and time.

Find the recording of “Advanced Risk Management for Success in Modern Market” Webinar here.

On the side I want to thank Pantelis for his gracious testimony. Read below:

20140714_pantelis_testimony

— Thank you Pantelis!

Have a good day all.

To your success.

~FibStalker

 

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Filed under Education, Event/Webinar, Forex, Money Management, Risk Management, Webinar

Tomorrow’s free Webinar at 12:00 GMT on ‘Advanced Risk Management’ on FXStreet.com, August 13 2014

Hello Traders!

FibStalker here.

I would like to remind you about the free Webinar I am going to offer tomorrow
Thursday August 10, at 12:00 GMT on FXStreet.com. You can subscribe hereunder:

http://www.fxstreet.com/webinars/sessions/advanced-risk-management-for-success-in-modern-markets-20140814

I will touch on the basic of risk management and then dive into the more advanced
concepts.

What are you plans? Are you going to do things differently, in order to become
part of the group of the elite 5% of winning traders, or do you eventually
“plan” to lose all the money you commit to trading?

Of course, if you are an experienced trader, you have already good risk and
money management in place. But even in that case, I promise there is something
new to learn and the webinar will offer a “HA-HA” experience for the majority of participants.

I will show Van Tharp’s CPR Formula for Traders, and then get into more advanced topics looking at practical, professional, Risk and Money Management best practices.

I will talk about: trading in the right direction, price structure and risk, risk-free
trades, not entering too late, partial profits, position sizing changes,
entering setups in steps to further limit risk and boost gains, super-charging
profits, market’s money, money layers, and more…

So do not miss my Webinar on “Advanced Risk Management for Success in Modern Markets”
tomorrow Thursday August 14, at 12:00 GMT. Subscribe below:

Here below is the webinar’s summary:
” Risk management is an integral part of trading. Traders often focus only on the method element of the equation. I will touch on the basics, like the ‘CPR for traders’, then focus on practical risk management that takes into account modern price structure and is grounded in the way the markets work. This includes accounting for fundamental truths like, “the markets can do anything”. Finally, I will show how even risking 1% per trade will make you wealthy, by getting aggressive on other people’s money.”

To register for the free “Traditional and new uses of Fibonacci in Modern Markets” webinar, follow the link below:

http://www.fxstreet.com/webinars/sessions/advanced-risk-management-for-success-in-modern-markets-20140814

I like to hear your ideas. Just comment below or send an email to fibstalker@gmail.com and let me know what you think.
I read and answer each mail personally.

I am confident the content of the Webinar will help to bring your trading to the next level.

I look forward to seeing you there.

To your success,

Regards,,,

Giuseppe, ~the FibStalker

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“You can only win with ‘Advanced Risk Management'”, August 11, 2014

Basic Risk Management alone does not allow respecting Market’s Fundamental Principles and Truths (although very important, Basic Risk management alone is a losing proposition)…

20140811_advancedriskmanagement… if you want to win and become part of the Elite 5% of consistent traders, you must consider adopting my best practices of ‘Advanced Risk Management’.

These days I am working to the content of my next Webinars at FXStreet.com.

This is going to take place on next Thursday August 14, at 12:00 GMT. You can subscribe to “Advanced Risk Management for Success in Modern Markets” webinar here.

As usual, I am going to provide something new to my followers. This is part of my research and trading activity in the last 13 years.

I continuously and consistently work hard for my followers and always give something new to them. Whether it is an article or a free Webinar with a piece of research or unique knowledge and information that  cannot be found elsewhere, I strive to educate my followers!

In the upcoming Webinar you will learn my main Rules of Trading, the  Fundamental Market’s Principles and Truths related to Risk Management, how to reach Trading Objectives and the reason why we need Risk Management.

I will briefly introduce the basics of Risk Management, including Van Tharp’s CPR formula.

If you do not know this formula you are in big troubles, and if you are currently trading real money you should stop now!

Why do I sound so adamant and extreme?

Well, the CPR Formula allows to cover for a couple of fundamental Market’s Principles, but there are other Truths, Principles and Objectives that, if you do not have them clear in your mind, you cannot possibly become a successful, consistent trader.

Statistically speaking, you are a loser.

Sorry for being blunt, and it is not my intention to offend you.

What I mean here is that 95% of starting and experienced traders lose money consistently and, eventually, lose all their money.

What are you plans about doing things differently, in order to become part of the group of the 5% consistently winning traders, instead of losing all the money you commit to trading?

If you have any ideas, please, send them to me at fibstalker@gmail.com

If you are serious about trading, let me know what do you think and I may be able to suggest other ideas too.

But if you have no ideas, then just watch my Webinar on Thursday on FXStreet.com. I promise this is going to be another “HA-HA” experience and will help you a lot.

Besides and beyond the basic CPR Formula for Traders, you will look at practical, real, advanced Risk and Money Management.

This is the real ‘meat’. That is when you start asking the right, important questions that very few mentors and experienced traders seem to point out: am I trading in the right direction? What is happening to price structure? Can I obtain a risk free trade and how?

Plus, am I entering too late and you should I just forego the trade? Are partial profits important? Should I take partial profits off the table and if so, where, in what portion of my position?

And more: how can I enter the setups in steps to further limit risk and boost gains? Can I super-charge my profits without jeopardizing Risk Management’s best practices?

You are going to get all these questions answered, plus you are going to discover how to supercharge your profits with the use of Market’s Money Layers.

Never heard about that? And do you still plan to be part of the Elite 5% of consistently winner traders?

If so, do not miss my Webinar on “Advanced Risk Management” next Thursday August 14, at 12:00 GMT. Check on my blog how to subscribe to the webinar.

And, of course, f you like this article and it makes sense to you please share your own ideas and comments. You can do that on the blog, on my videos or just clicking reply to this email.

I read and answer each mail personally.

Have a great week.

~FibStalker

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Next Thursday 14, 12:00 GMT, free Webinar on FXStreet.com, August 7 2014

Hello Traders,

hope things are going well and your weekend is approaching smoothly, or maybe you are on holidays and you are already well into relaxation mode. If that’s the case, good for you!.

I have been working at the idea for my next Webinar that will take place next week on Thursday August 14,  when I be offering a free Webinar on FXStreet.com, the largest global Forex portal.

If you are looking at a different and effective way to look at the markets, and wonder why you often are in the red with your trades, or you just want to bring your risk management to the next level, the next week’s webinar may be for you.

I am happy I will have the opportunity to share some of my research, which has practical impacts on my analysis and trading, and I firmly believe it can help you in your trading journey.

The webinar will be on Thursday August 14, 2014 12:00 GMT (8am Toronto time).

See details below:

20140807 Advanced Risk Management for Success in Modern Markets
Here below is the webinar’s summary: “Risk management is an integral part of trading. Traders often focus only on the method element of the equation. I will touch on the basics, like the ‘CPR for traders’, then focus on practical risk management that takes into account modern price structure and is grounded in the way the markets work. This includes accounting for fundamental truths like, “the markets can do anything”. Finally, I will show how even risking 1% per trade will make you wealthy, by getting aggressive on other people’s money

To register for free to the “Advanced Risk Management for Success in Modern Markets” Webinar, follow the link below:

Click here to register for the webinar…

I hope you enjoy it, along with its fresh and useful information. This webinar will be dense of “HAHA” moments, and I am sure you will learn a lot and even develop a different view and more insights on the markets and risk/money management.

I look forward to seeing you there.
Have a great long weekend.
Regards,,,
Giuseppe, ~the FibStalker

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EDUCATION – A trader’s Journey, December 17th, 2013

Hello traders,

this article sparkled from the comment of a fellow trader and follower and provides some information useful for your trading journey.

http://www.youtube.com/watch?v=M8ZN4L5p-pY

A trader’s journey

Trading is easy but not simple. As most of you have already realized the main problem is the education we go or went through, or we are obliged to go through and, especially, the lack of mentors who.

Finding a good mentor is not only a matter of luck, but also putting efforts into it and researching the internet wide and large, ask people, buy monthly services, etc.

Then there are the skills: 1) trading methodology, 2) money/risk management; 3) psychology.

I rate them as follows, in terms of importance:

  1. 10/15%
  2. 10%
  3. 75/80%

1) Trading Methodology: There are a different methods available: traditional technical analysis (?), price action (?), there–is–an–other–in–the–universe (cycles, Elliot), band trading (?), strategy trading, sentiment trading (?), program trading ().

You have been there and, maybe, tried different options, but do they really provide an edge? It is 50/50%, so people who make money with the majority of these methods do it because of superior MM and psychology and because they stick to the winners when they have good trades. Low reliability, high expectancy also due to large occasional R/R with a small, controlled risk. This is the secret for low reliability methods, you know it already. I deeply respect traders who can make consistently money using these methods. They are not a lot, though.

If you know my work a bit, you also know that I am a proponent of observing Program Trading (a powerful class of algorithmic trading) and guarding against HFT (especially in entries on 15min and lower). I have got into it before joining SIAT/IFTA and studied and researched it for a long period of time.

If you have time and are interested, watch a few videos on this blog, and you will get an idea of what I am talking about. Notice that the method only works on high volume instruments: forex majors, indices and commodities and high volume stocks. This is a very important point, because we need to make sure that Program Trading is active on the market we analyze and trade.

It is a brand new approach that attempts to spot Algorithmic Trading footprints and incorporates the traders` group psychology, so it makes it easier to trade with the natural market flow, which also means it is more difficult to trade, and it has certainly been for me at the beginning, because we all are mentally wired in a way very different from that required to be successful following Program Trading footprints. Program Trading is the way to go for me, it gives very good results and, as a matter of fact, methods based on algorithms are getting a lot of coverage on FXStreet.com, one of the largest global Forex portals, that has also recently awarded my efforts in this area .

2) Risk/Money Management: If you have good risk and money management (MM) in place you can can do well, provided you are disciplined, but if you want to do very well you have to have a good trading method too, with high reliability. Generally MM is not an issue. There are two aspects of it:

  1. having MM right for the market you trade and in relation to the type of entry you use (I have 4 classes of entries, on different timeframes, with variations that take into account all the cases that can actually materialize in price action);
  2. having an MM in place that allows you to grow your profits faster. I have studied this second aspect deeply in one of my research paper, which is available for free on this blog (browse the eBook & Papers section of the blog).

While the research paper focuses on the links between MM and trading goals, it shows two important things in the process:

  1. a rigorous methodology on how to study and simulate your system with different MM techniques, provided you know the trades results distribution (and you have more than 30 trades in it, but the more the better)
  2. a showcase on how to use market money techniques to boost profits. Nothing complicated in fact, which demonstrates that part 2 of MM above (i.e.having a way to grow profits faster) is not a big deal; however part 1 must be in place and done in the right way, which requires a method to firmly frame price dynamics.

3) Psychology: is the cat to skin. This is the real deal. We are wired to not perform correctly in the markets as we only want to get involved when we are sure about it (e.g. breakouts?), while we should get involved when the risk is minimal (e.g. on retracements). This requires acting when the fear is highest and confidence is lowest. Risk acceptance is key. Some people even propose to trade without a stop, in which case I do not understand how they do define their unit of risk, which is also fundamental to calculate the trading method’s expectancy . More power to them if it works for them (I doubt): it does not work for me.

Then we need to accept the principles and truths of the market (well explained in “Trading in the Zone”), which requires not just reading the book, but thinking a lot about it, relating its content to actual trading, taking notes, coming back after weeks, months and years, appreciating the changes, noticing what must be done still, and so on. This is the only way I know to internalize good psychology and behavior. I did this exercise, also studying other material, for more than 2 years. And I keep doing it.

This, and a lot of other work, must be done to undo and build the right psychology (e.g. study Van Tharp`s “Peak Performance Course”), but I still believe that the majority of success in managing our psychology in the right  way is just related to building confidence in a method that works (again, high reliability) and learn to stick to it. Much of the psychology work we need is related to “undoing” or “unwiring” our trading from what we would naturally do, or what we have learned in the past.

Do you want the proof?

Give a newbie a method that works and rules to trade it and manage risk properly and she will do exceptionally well! That will be the only way she will know how to trade as she will not have in her mind non–useful beliefs. She will probably be among the elite 5% traders in the world. I wish I had this benefit when I started.

Some readers asks for mentors` names. The following people helped me actively in the past or I have been able to get their attention:

  • Toni Hansen
  • Ivica Juracic
  • Van Tharp
  • DR Barton
  • Eugenio Sartorelli
  • Andrea Unger

It is difficult to find good mentors, but it is not impossible!

Finally, just study as much as possible in this blog. It also contains a lot of original research I have been doing on the markets. There are almost 400 videos with reviews and method explanation and I also share some of my research articles.

Hope this post will help you.

Notice that price projections in my method are not from/to random levels and do not follow Elliot Wave, DiNapoli levels or other methods, but rather a proprietary way to frame price based on modeling the effects of Program and Algorithmic Trading on price.

My method helps “level plain” the trading game showing what banks, institutions and big hedge funds are actually doing (and not what they are saying they are doing). Follow me to learn how to spot the Algorithmic Trading footprints.

I send a free Newsletter in the weekend and provide updates throughout the week. The newsletter typically includes 3 video reviews for (1) EUR/USD, Dollar Index, S&P500 e-mini and Gold e-mini; (2) the Japanese Yen majors, i.e. USD/JPY, EUR/JPY and GBP/JPY; (3) the other majors: GBP/USD, AUD/USD, USD/CAD. Please, register here to receive the free weekly newsletter.

If you like this article, please share it with your friends and fellow traders. Thank you (use the buttons below the article). Sharing is caring…

If you want to receive such videos, please subscribe my free newsletter.

Should you decide to operate based on this information you are invited to do your own due diligence, consult a registered trading professional, as well as, understand the risks involved. This information is for educational purpose only. Please read the Disclaimer and accept all involved risks.

Have a great day.

Till the next post

Giuseppe Basile, ~the FibStalker

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