Ok, the USDJPY tutorial is up and available for viewing and/or download over in the “Download Links” section of the website under “USDJPY VOLATILITY ALGORITHM TUTORIAL”. Please realize, that when I write these documents I am attempting to be as brief and concise as humanely possible, while at the same time imparting to you as much valuable trading knowledge as I can; obviously, I can’t begin to answer all of the “what ifs” all of you might have in the course of reading it. One of the main goals of the blog is to be a “continuing education” series of helpful trading information you simply can’t get from 1) any bookstore, 2) any seminar, or 3) anywhere on the internet whether you pay them or not [and hopefully you don’t].
The USDJPY tutorial is 13 pages in length; I could have easily made it 200. I know from experience, that I simply can’t write documents that you have to spend hours pouring over to understand. Basically, my goal is to have you read it in 15-20 minutes; think about what I’m saying; and then maybe go over parts again in your mind to “nail down” certain criteria. From there you transfer your “thought process” and either demo the implementation, or watch from your real account with the manual & tutorial in mind and watch closely how it all works to make you money. Most importantly, compare and contrast how you used to trade and how the algorithm requires you to trade, and notice the subtle differences in how you approach the market each day. That’s why I have always said: “READ. THINK. STUDY. ACT. PROSPER.”
As I approach 2017, my goal for each of you out there reading this is to make you aware of just how close many of you are to jettisoning the dreaded “Pudding Business”. And since we are getting plenty of Newbie first time visitors to the website, who just might not know what the “Pudding Business” represents, the following photo should clear it up.
There are 3 critical trading concepts not included in the USDJPY tutorial that I want to write about today and amplify in further detail; 1) time of day trading and my mathematical formula [which I’ve used for years in teaching people how to trade] for the probability of making money each trading day, 2) the absolute necessity of having your own personal identifiable trading goals in place before you start trading and then how to properly achieve them so you can “escape to success”, and 3) how much do I need in terms of capital to make trading a full time career.
Long time readers/clients have seen the formula I will present again today; it is my personal proprietary mathematical formula I have used in my trading career both on and off the floor since “pits” went the way of the dinosaurs. It is as follows:
P(x) = Δ(MP) – Ʃ(t)
P(x) = probability of making money today; Δ(MP) = delta (change in intraday VIX, or volatility); Ʃ(t) = the sum of the amount of time in the trading day that has already expired.
In other words, your probability of making money on any given trading day is directly a function of 2 dynamic variables; one you can control and one you never will control. You can’t control how volatile a market is during the trading day, except to notice it and take advantage of it via the algorithm signals; it should be intuitive to you that the more intraday volatility a market has the higher the probability you will be in an algorithm position that captures at least one good move for profit, and that if intraday volatility is waning or is at already low levels, the risk for “chop” and/or not very good moves increases.
The second part of the equation deals with time; specifically, my premise is that the more you move into the trading day and closer to the close, your probability of making money for the day decreases; why? There are 4 reasons; 1) there is a high probability of not having enough trading time left in the day to recoup potential losing trades, 2) the less time left in the trading day sees a higher probability that the HVALUE and daily range highs have been achieved for the day, thus more than likely denying you a good gain from being either long or short, 3) you can clearly see from the M1 candlestick chart when the day’s trading is starting to slow down and volatility decreasing for the day as we wind towards the close, and if you get yourself into a position during this time the probability increases you aren’t going to like the outcome, and 4) as a professional trader your “goal” is to make money every day; granted it would be nice if I could hit my PIP goal [e.g., in USDJPY] and that is my objective, but under no circumstances do I want to risk my “PIP goal” later in the day and have a winning day that’s in the bank already possibly turn into a “losing day” because I did 4 trades in a row when things died down and ended up a loser on the day. And while the volatility algorithm in USDJPY has an extremely high “win rate”, and thus you might conclude that “a trade is a trade” and therefore time makes no difference when initiating a position, remember that the algorithm cannot differentiate between a 1 or 2 PIP winner and a 30 PIP winner. My point is that late in the day trades could see very small winners and/or chop as your best outcome, while losses are potentially still there in the 5-7 PIP range; so what’s the point of trading this?
All of this, of course, begs the question then of when is the best time to trade USDJPY? First and foremost, via algorithm rules, we have to see an HVALUE [the higher of either (the day’s open) – (low of day) OR (the day’s high) – (the day’s open)] of GREATER THAN 40 PIPS before we make any trades for the day. For this reason alone, unless we have news [economic, geo-political, or Central Bank interest rate decisions] out of the Asian session from Japan or China, I most likely will avoid trading this session altogether; besides, if you live in the U.S. and stay up all night, what do you have left in your tank the next day in the U.S. session? About the only way you can consistently do this is to become a meth addict and/or zombie; neither of which is particularly an attractive option in my book.
The first part of the European session, which opens up at approximately 2 A.M. – 3 A.M. New York time, is usually somewhat subdued, although it can be very active as the Asian session closes; if you like getting up early in the U.S., then go for it.
The time frame where you will find the best liquidity, biggest volumes, and about 90% of the day’s action [i.e. seeing the high or low or both expanded] is between about 5 A.M. – 6 A.M. New York time, to about 2 P.M. [± a few minutes either way depending on the day] New York time. This is your 8 – 9 hour window of opportunity for optimal algorithm use.
The second critical point is your “trading goal”. First and foremost, you got to sit down with yourself and figure out 1) how much capital do I have for trading, and then 2) using approximately 10X leverage [maybe a little higher if you are an aggressive trader and have a higher risk profile, but I wouldn’t go past 15X; maybe a little lower if you are more conservative in your approach, but I don’t see the point in going lower than 7X or 8X] figure out how much volume you should be trading.
For example, let’s say hypothetically you have $1,000 to put into a trading account; at 10X leverage that means doing $10,000 worth of USDJPY. At current rates of about 118, that equals approximately 12,000 ¥, so a conservative trader might do a volume of 0.10 lots and an aggressive trader might do a volume of 0.15 lots [1 lot = 100,000 base currency unit].
The second thing you need to do is establish a reasonable PIP goal for the day; the key word here being “reasonable”; it doesn’t do you any good to set a goal of 200 PIPS a day, you’re only fooling yourself. Anything 50 PIPS or less is what I would call “reasonable”; as for me personally it’s 30 PIPS. Now, just because you are in a trade and you pass your PIP goal, doesn’t mean you get out of the trade; you let the algorithm tell you that. Don’t watch the money, watch the trade!
In the past I have done the math before, so let me repeat the result again: “No matter the size of your account ($200 minimum) at the start, if you make on average 3 PIPS per day AND USE CONSTANT LEVERAGE OF 10X, by the end of year 6 EVERYBODY IS A MILLIONAIRE (assuming no withdrawals)! Obviously, the more you start your account (i.e. over $200), the quicker you beat that 6 year time frame to death. So, unless you are 110 already and maybe you figure you don’t have 6 years, for everybody else, even this extremely modest PIP goal gets you to the finish line. So, I don’t wanna here about how 5, 10, or 15 PIPS doesn’t matter; it most certainly does matter, and the sooner you realize it the better. EVERY DAY YOU FINISH WITH PROFITS, YOU ARE DAYS CLOSER TO YOUR GOAL OF “ESCAPING TO SUCCESS”!
The third criteria, “What do I need to turn pro?” I get all the time. Let me first say that you don’t get into this business to make what the majority of people in the “Pudding Business” make; if that’s your goal, then stay there. Now, don’t get me wrong, if you have to start low and work your way up like I did, then fine, it is what it is; you do the things necessary to get where you want to go … simple as that.
In today’s Dollars, if you’re looking at trading as the only source of income, my advice would be to have as a minimum goal your first year of making about $50k; that would translate into having capital in your account of a minimum of $5k to start and a “PIP goal” of 20 per day. From there you can build accordingly to where you want to get to in terms of earnings. One of the great advantages of USDJPY is you will NEVER, with a capital “N”, ever get to a point where you have to scale back your trading cuz the market can’t handle your volumes without disruption. You are only limited by your comfort zone in what you want to make, and believe me, if your desire is to make $1 million a year or more, this market will have no problem accommodating you; remember, this is a $3 trillion PER DAY business, and your millions are “paper clip” change and rounding errors!
I had a great conversation via telephone on Friday with LMFX management, where we talked about a number of issues. Over the last 6 months, they have basically rebuilt the website, changed email procedures, replaced LP’s, hired new people and got rid of some others, and replaced some deposit/withdraw vendors. As far as the deposit functions via debit/credit card, I have been told they are operational now and working effectively.
I was told that their PAMM should be ready to go sometime around the end of March 2017; yes, I know it’s a far cry from last August when it should have been ready, but in their defense they have totally revamped the process, gotten a new software team, and additional LP’s for better liquidity. I have stayed with them these last months because they are the lowest cost alternative that accepts U.S. clients, and the fact they have plans to bring on new products. The “back office” area is also improved, and that will reduce problems going forward with regards the PAMM. The bottom line is this: I would rather face delays now so they can get it “right” and as a result there are very few problems in the future after trading commences, than see them hurry things and after trading starts there are problems all over the place.
LMFX has also brought on board new LP’s in the FX arena, and their ECN MT4 platform [Zero Account] has an average spread in USDJPY of 0.3 – 0.4 PIPS with a round turn [RT] commission of $4 per 100,000 volume. This is the most competitive “net” trading cost I have witnessed in my years of trading on the MT4. [Note: I switched my account over to the ECN on Friday, and couldn’t believe what I was seeing … best I’ve ever seen really]
When I was on the trading floor, and it is still like this today, the inter bank spot market trades as USDJPY and the futures market at the CME trades as JPYUSD; this is due to the fact that the overnight rollover interest differential is priced into the expiration cycle [March, June, Sept, Dec] via the price and doesn’t have to be paid out in Yen or collected in Yen from market participants every day like in the spot market [something the Chicago banks would have nightmares with if they had to deal with it]. At the time [1980’s & 1990’s] the futures market had as a minimum tick fluctuation of 1 PIP; today, because offshore brokerage houses and LP banks are “kicking their ass” in terms of volume, the CME has changed the minimum tick fluctuation to ½ PIP to try and stay competitive.
Well, do the math with the “net” trading cost from LMFX, and once you make the switch from USDJPY to JPYUSD, you find it is ½ PIP. In essence, you’re trading EXACTLY the same as an exchange member in terms of spreads and “net” costs to do business, and you have 3 additional GIGANTIC ADVANTAGES over the lovely folks in America’s murder capital Chicago: 1) you can pick the size of your volume and are not “pigeon holed” into standardized futures contracts which the CME only offers, 2) by trading through LMFX, an offshore broker, there are no 1099’s or other tax forms that are sent to anybody anywhere CUZ THE LP BANK THAT HOLDS YOUR MONEY AND PAYS OUT ON YOUR PROFITS USES SAP [SECURE ANONYMOUS PROTOCOL] AND HAS NO IDEA WHATSOEVER WHO YOU ARE OR WHERE YOU LIVE, and 3) you don’t need to purchase a membership [current membership for sale at the CME today is … are you ready … the low, low price of only $206,000] “Do I get a set of Ginsu knives with this or no?” So, somebody please enlighten me why anybody would want to own an exchange membership [for $206,000 no less] when they can get the exact same thing FOR FREE WITH 2 OTHER VERY LARGE BENEFITS TO BOOT?
Bottom line is conditions for you to be in this BIZ have never been greater or more in your favor than they are right now … NEVER. Your trading business through LMFX requires 1) no physical office [called rent], 2) no employees [called no employee expenses and no government hassles], 3) no inventory of physical products [called “stuff” you haven’t sold but pray that you do], 4) no permits necessary [called “government get the fuck out of my business”], 5) no need for accountants & lawyers [called saving you money they will legally steal from you], 6) no need to be tied down to one specific location [called get me the hell out of Buzzard’s Breath, Wyoming where I have my store that sells stuff, and get me to the Caribbean ASAP], and 6) you decide your income and lifestyle [called no boss; throw your monkey suits away!].
For me it’s always been a slam dunk, no brainer calculation … and now that you have the roadmap for success in the algorithm, it’s only you holding yourself back.
Ok, turning to USDJPY today … looks and feels like some traders are becoming cautious ahead of tonight’s BOJ meeting release of “Peter Pan’s” latest & greatest experiment in monetary policy; quite honestly folks, who knows what Kuroda & Crew have in store for markets tonight at 10 P.M. New York time when SHTF becomes the market operative.
A handfull of good algorithm trades early this morning; HR1 first line of major support at 116.90 came close to being penetrated, but so far has held. Second line of major support is down at 116.25. Directly below the trades in succession.
Made 4 algorithm buy trades in about 2 hours 10 minutes; made money on 3, and basically scratched 1; all in all captured about 24 PIPS of profit. Since today is likely to be slow in New York due to tonight’s BOJ release of their brand spanking new efforts in monetary policy, I’m happy with the gain and won’t “push it” with further trades going forward; I don’t know when the “chop” will set in, we’ll have to wait and see, but I don’t want to be in anything when it comes … early or late. I’ll wait for tonight and size up the trade again against fresh info from the market.
Meanwhile over in gold … crickets … can’t even muster a $7 range … I’m not saying this market is dead, but I can feel retail spec enthusiasm for this market has cooled to the point of almost being frozen … so many traders took a bath in this stuff over the last few months … in my opinion, they won’t be back to trade for a long while, and that reduces order flow which constricts HVALUES & daily ranges and makes trading much more difficult.
A lot for many of you to digest today; tutorial plus today’s blog. Enjoy! Until tomorrow …
Have a great day everybody!
-vegas
OPEN A DEMO AND/OR LIVE ACCOUNT [CHOOSE
THE “ZERO ACCOUNT”] AT THE LMFX LINK IN THE “DOWNLOAD LINKS” SECTION OF THE
WEBSITE TITLED “OPEN TRADING ACCOUNT – DO IT NOW!”
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