13. Different risk levels, so change my goal
My original goal was to stop the demo account and start investing my own cash after 70% of my trades were successful. I decided to change my goal to begin investing with my own cash after I had doubled the amount of cash in my broker’s account. That would be because the amount I invest depends upon the level of risk.
In this strategy a number of different indicators each represent one point. The more points a person has, the less the risk. The table below gives the percentage of their broker’s account they should invest with 3 different amounts of risk.
Meditating upon those points made me change my goal to stop using my demo account after I had doubled the amount of money in my account.
Note that the combination of indicators in CashTrap works best in a consolidating market. Do not have as much faith when using CashTrap in a trending market.
(This strategy should not be used in isolation. Remember these principles from the CashTrap blog post.)
Go to Forex Factory for the latest financial news. When a story is really significant, the currencies in that list have a red folder beside them. I will NOT trade that currency in the next 2 hours. A grey folder represents a bank holiday. I would not not trade that currency on that day.
Go to the Currency Strength Meter. Find a pertinent currency that is at least 2 bars above the other one. If the stronger is the first one, this would indicate a call (buy). If the stronger is the second one, this would indicate a put (sell).
AUDJPY would definitely have to be a call on the Hourglass. I would not trade USDJPY.
(The EUR > USD in the image below. The alert panel can be used in place of the Currency Strength Meter. However, it takes time to figure out when the difference between the 2 currencies is equal to or greater than 2 bars.)
Time in candle
To decide exactly when to invest, look at the Alert Panel within the Hourglass. I have to invest when there are 3 or more minutes left in a five-minute candle. As soon as a new candle forms, I’ll quickly scan to see if it looks like at least 5 indicators may be possible.
In the image above, I must invest within 8 seconds. I will enter the trade when the price is 1.22033 or less. If that had been a put, I would have entered the trade when the price is 1.22033 or more. (We usually just look at the last 3 digits and refer to the price as 033.)
CashTrap works best in time of consolidation. That means the when the market is significantly trending, I will not trade.
To repeat in different words: During consolidation, the call and put arrows are more accurate.
In the above image, the market was consolidating between the support & resistance lines. However, the last candle has gone too far below the support line. So, I most likely would be concerned about a new trend downward forming. I would not trade.
If I had begun making a trade decision before that new candle went so far below the support line, I would consider this a consolidation. If I had enough points, I would have decided to make a call trade as soon as it got very close or a bit below the support line. Alternately, I would have decided to make a put trade as soon as it got very close or a bit above the resistance line.
The image to the right is from Cash Trap. Note that when the Bollinger bands are horizontal and parallel, the market is consolidating. When they are obviously not parallel, they are trending.
I always open up Hourglass at start of my trading hour. When I’m counting my points, I drag the page margin so that I can see the Alert Panel. Click the currency pair I wish to investigate. If it matches the results of the Currency Strength Meter, I consider trading with it. Otherwise, I don’t trade.
S and B
In your Hourglass, just above the Stochastic & RSI trend graphs, you will see an S or a B.
If the S (sell/put) or the B (buy/call) line up with your other Put or Call indicators, that’s worth a point.
You may want to read the Bollinger Band section. When the price of a currency pair is within bottom Bollinger band, that’s a call (buy) indicator. When the price of currency pair is within the top band, that’s a put (sell) indicator.
In this image the trend line is that upward-sloping red line. Upward suggests a call. Downward is in favour of a put.
You may want to read the Trend Line section. If the trend line and direction of the call or put arrow are favourable, you get +1 point. If unfavourable, you get -1 point.
Stochastic & RSI
The RSI is the bottom chart on Hourglass. The dotted lines represent Bollinger bands. When the grey line has gone beyond the dotted line, that suggests that momentum is slowing. If it has just begun to pass back through the dotted line like the light grey graph, it is worth 1 point. I.e., it is worth a point if other indicators suggest a call.
If the grey line is above the red dotted line, look for a put. If is below the green dotted line, look for a call.
In my opinion, the dark grey line in the image above has gone too far beyond the dotted line to be worth a point.
Bollinger bands together
If all 3 Bollinger bands are together where you see the Put or Call arrow, that is worth one point.
When I decided to change my goal, my daily goal became to increase my account by at least 2%. (However, if I increase it by more than that in an hour, I’d be pleased to keep increasing it until I got to 8%. That’s the number at which a person should stop for the day.)
2% per day actually is a descent amount of money. Look at the daily compound interest calculator. The money starts off slowly. But, if you
- Start with only $500 in your account,
- Have only 4 trading sessions per week and
- Increase your account by exactly 2 % a day,
- You will have $30,747.21 in your account after just one year.
Tick chart to trade
When you are about to trade, it helps if you switch to the Tick Chart. It helps you so see the price more clearly.
Cheat sheet after I decided to change my goal
Below is a “cheat sheet” to help me quickly decide whether I should trade 0%, 1%, 2% or 3%.
I start of each trading session by having a sheet of blank paper with the amount I have in my account written at the top. Beside that are the possible trade amounts at 1, 2 or 3%. The trade amount you wish to invest will be entered in your forex broker’s Amount box. Last two numbers are my daily goal of 2% increase and the 8% stop-trading-for-the-day number.
Each time the amount of money in my account changes, I write the numbers over again.
Change broker’s trade time to 3 minutes, candle to 5 minutes.
- Select correct currency pair with broker. Payout 70% or more.
- Quick note to myself such as AU p 240 or more $7.53. meaning AUDUSD put 0.79240 or more invest $7.53.
- No trading within 2 hours if red folder at forexfactory.com.
- 1 point. Refresh Currency Strength Meter at start of each trade decision.
- Enter trade before 3 minutes left in candle.
- 1 point. Call or Put in Hourglass match Currency Strength.
- 1 point. Arrow within bottom Bollinger, call. Top put.
- + or -1 point. Trend line and Call/Put arrow same.
- 1 point. Stochastic back through dotted line. (Call bottom, Put top.)
- 1 point. RSI back through dotted line.(Call bottom, Put top.)
- 1 point. S or B line up with Call or Put arrow on Hourglass.
- 1 point. All 3 Bollinger bands together.
- 1 point. Near support line for call or resistance if put.
Maximum trading time
It takes a great deal of concentration to trade forex. Do not trade more than one hour at a time. Take off at least one hour before trading again.
If you increase your account by 8%, stop your session.
Change my goal, final thoughts
It takes a long time to become a highly skilled forex trader. I really like this point system. I hope I will not feel compelled to ever have to change my goal again.
Feb.23. I decided to try some of the points above on each of the currency pairs that are analyzed by CashTrap. First of all I examined the payout of each the the pairs you see here.
I listed the ones that pay 70% or more on a sheet of paper. (Note that the pay amounts change throughout the day.) Because some decision have to be made within seconds, I just listed the first letter of each currency.
At the top of the sheet I listed my funding statistics and on the side I listed the available currency pairs. The sheet looked something like what you see below.
743.15 7.43 14.86 22.29 758 802
Respectively, the numbers in the row represent the amount in my account, 1%, 2% and 3% of my account, my goal of adding 2% to my account for the day and the maximum by account can be before I stop for the day.
Then, using the CashTrap strategy from my Hourglass, I began to mark up the list like you see it below. If the first currency is stronger, a write down c for call. If the second currency is stronger, a write down p for put.
My strategy today is to not make a trade unless it has at least 6 points. I had the cheat sheet in front of me and began to look for the number of points for each of those 7 currency pairs.
The first one I looked in the Hourglass was NZDUSD. It had a put up in the top Bollinger band. I would not look any further because that conflicted with the letter “c” beside the NU.
So, I wrote a message that meant, “Wait until there is a Call arrow in the lower Bollinger band.” That would give me 2 points. The “c” would give me another point. At the point that I had those 3 points, I would look for another 3 points using my cheat sheet.
Next I looked at EURJPY. The currency strength meter numbers were so close that I decided that there could be either a put or a call.
The Put arrow was in the centre and the exponential moving average was moving downward.
I got excited about EURCAD. It had 6 points! But, the Hourglass told me I should not enter the trade until the price was 988 or higher. I was watching on Vidiforex with baited breath. But, it did not go that high before it was too late to trade.
EC p 6 points 988 or higher
EJ p or c.
GJ c wait — call in lower boll.
GU c wait — call in lower boll.
NU c wait — call in lower boll.
I made money on EURUSD. I was patient and waited until a put arrow was in the upper Bollinger bands. I had a total of 6 points and invested $14.86 (2%).
The numbers I re-wrote at the top now are
753.99 7.54 15.08 22.60 7.58 802.
And the change my goal bad news
I lost money on EURJPY. I was patient and waited until a call arrow was in the lower Bollinger bands. I had a total of 6 points and invested $14.86 (2%) three times! Look at that screen shot on the left. I just thought it could not get any lower.
But I was wrong. Matty Pips says it’s okay to make mistakes at the beginning if you learn from them. And, did I ever learn. I’m going to change my goal again to double my supply of play money AND never make these same mistakes again.
Earlier on this page I said that it’s safer to invest in a consolidation. Look at that down trend on the right. Those two little ups and downs really are not enough to be called a consolidation. The major down trend continued as a down trend.
Another mistake I’ll never make again is to reinvest when I’ve lost money. One of my rules I’ve already written in this blog is this: If you’ve lost money on a currency pair twice, do NOT trade with that pair again today!
Another mistake I made was sort of lying to myself. Look at the faint grey line on the screen shot to the left. The stochastic and RSI lines are supposed to go THROUGH the green dotted lines to each get a point. In this case, rather than go through, they just touched the dotted line. So, actually, I received only 4 points.
I lost lots of play money with EURJPY. I’m glad I learned these lessons before I start trading with real money.
I learned another good lesson from this loss. I woke up in the middle of the night and was still groggy. I looked at a promising consolidating pair, glanced at Cash Trap and wrote down
AU c 893 or less.
I began to count the points on Cash Trap and found 6. I was so excited that the 893 became another number in my head. I entered 2% of my account total in the Amount window. When it was below my new mistaken number, I clicked the Call button.
Big mistake! I guess the lesson learned was to always double or triple check my entry amount.