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Fun With Forex

July 13th, 2007 at 10:23 am

I stopped my posts about day trading Forex as I'd given up in disgust after losing $3,000 fairly rapidly. The last trade was especially annoying as I'd gone long the AUD at around 83.15c US and had been liquidated when the AUD dropped to below 82.70c on a sharp dip. It only traded a few points below the liquidation price before bouncing back up to above 83c, and since then has trended strongly upward to over 86c.

Since my original plan had been to buy the AUD vs USD when it was around 82c, but had lost my capital trying to day trade short runs up and down, it was disappointing to end up sitting on the sidelines with less than $250 in my trading account and not having enough margin to benefit from the strength of the AUD.

I finally decided to transfer another (final) $1000 into my trading account and take a small ($25,000) long position on the AUD. I figured that since I have around US$75,000 of stock in my "little book that beats the market" portfolio that is unhedged, I can't really loose by doing this. If the AUD does continue to rise against the USD the gains from my Forex trading will offset the currency losses from my US stock portfolio and vice versa. Although the effective interest rate on keeping a position open is around 7%pa the current run up in the AUD is so strong that the interest cost is negligible.

BTW - with the AUD around US$0.868 my net worth is breaking through one million in USD. Wink

Copyright

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth 2007

Adventures in Day Trading - 15

June 5th, 2007 at 09:43 am

I had a look through the available index CFDs from CMC Markets and couldn't find one for the Shanghai Market. The closest appears to be the HK33 Index. I was planning to trade that Index but the chart hasn't updated since mid-morning Monday, so I'm not sure if this index is trading or CMC Markets has suspended it due to the big falls in the Chinese Market this week?

Anyhow, I instead went back to trading the AUDUSD spot rate. The AUD had risen sharply in the past couple of days on speculation that good economic figures, low unemployment, increasing job vacancy ads, and a slight recovery in the housing construction industry might push the Reserve Bank towards increasing our interest rates another 0.25% tomorrow morning. I personally doubt that there is enough inflationary pressure yet to warrant another rise - after all inflation has dropped back within the target range, and so far there hasn't been any evidence of wage pressures resulting in a general wage breakout. I discovered that I can manually edit the $ amount being traded - rather than just $50K or $100K I can enter a $25K trade. So I sold $25K of the AUD at 0.8330 yesterday evening. As usual when I go short the AUD kept increasing today, so I've lost a bit on this trade so far, but at least it was only costing me $2.50 a point with this size position. The AUD has reached close to the 22-year high this evening, so I sold another $25K at $0.8370. I now have a total short position of $50KAUD at an average price of $0.8350. I'll leave this position open and see how the price reacts when the Reserve Banks decision is announced tomorrow morning. Hopefully if there is no rate rise the AUD will drop back slightly...

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 14

June 1st, 2007 at 10:27 am

I didn't trade recently (I don't have enough money in the account!) but today I transferred another A$1,000 into the account so I can trade next week if an opportunity arises. I'm a bit wary of AUDvsUSD forex, although I may short the AUD if it still relatively high on Monday - apparently the latest rise is based on speculation that the Reserve Bank may raise interest rates at next week's meeting. I think this is unlikely, which should result in a still pull-back after the announcement on Wednesday morning. Then again, I could be wrong as usual Wink

The real reason I've topped up my trading account is to try to short the HongKong33 if (when?) the current bull run ends. Given the huge gains in the past 2 years, and the sudden 6% drop this week in reaction to the Chinese government raising brokerage fees in an attempt to cool the market, I expect that there will be a substantial correction in the HK index in the near future. The market recovered this weeks drop within a couple of days, so the speculators are currently still very bullish, but there's a limit to how long such a bubble can inflate. The trick will be to not set a short position too early and lose all my trading capital while the bull run continues.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 13

May 21st, 2007 at 01:30 pm

Lucky 13! I dived back into forex trading with the last $700 out of my initial $2000 kitty. I lost a quick $135 on a sudden move the wrong direction, then bought the AUD at 0.8251 which was close to the bottom of recent trading ranges. I hung on through a couple of down turns to under 0.8200, but today the bottom dropped out of the AUD (or the USD suddenly gained support - I never know which until after the event), and CMC Markets automatically liquidated my position when my account balance dropped to less than US$200. I can't trade even a $50K position with a balance under A$500, so I won't be trading for a while, if at all. My initial plan was to "play" with $1000, but I soon had to add in another $1000 in order to trade, after my initial quick losses. If I add further funds in I'm in danger of throwing good money after bad - and developing a gambling addiction! The total loss of $2000 isn't material to my overall net worth, but it is still significant (and unpleasant). I took me a lot longer to decide to spend $1800 on a new computer system than it took to lose a bigger amount day trading. Day trading is definitely playing with fire.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 12

May 16th, 2007 at 10:27 am

I should rename these posts "Disasters in Day Trading" Wink

After holding on to a AUD/USD short position that I'd opened at 0.8323 for more than a day, while the price bobbed up and down within a few points of my entry price, the AUD suddenly dropped down rapidly to 0.8305 late last night, then levelled out at 06/07. As both DW and I had short positions open I woke her up to ask if she wanted me to close out her position. She got up to have a look at the chart and, after a bit of hesitation, decided to close out at 0.8306 at a good profit on this trade.

I was impatient for her to decide and make her trade, as I then had to log out of her account, and wait for the MarketMaker app to close down, before I could log into my account to close out my position. Unfortunately the AUD rebounded to 0.8311/13 before the trading software was open with my account on the screen. I thought about still closing out at this price, which would have made me a $100 profit on the trade, and possibly then going long on the AUD to gain from any continued increase back to its previous trading level of around 0.8323. In the end I decided that this may just be a temporary upwards jig in a general down trend, as has often happened before, so I kept my short position open, waiting for the AUD to drop back down towards 0.8300 (which would have made back my losses from the previous day's trading).

Instead the AUD continued back to its earlier level of 0.8322/24 so I left my position open expecting the AUD to level of at this level and possibly drop again later in the evening. At that stage the chart looked like there was a slow downwards trend in place. I shut the trading window while I did some blogging, then went back a short while later to check on the spot price. Shock! Horror! The AUD had continued to climb rapidly, and was sailing through 0.8341, 0.8342, 0.8343... I was now down $200 on this trade and it looked like this could be one of those vertical moves of nearly 100 points. At this stage I lost my nerve, and, after holding my trade open for over a day, closed it out at 0.8343. I immediately bought the AUD at this same price, hoping to make back some of my losses if the strong uptrend continued for a while. Of course, the AUD immediately reversed direction and started dropping, so I closed out that position at a small loss. After watching for a little while it looked as if the upward spike in the AUD had definitely lost all momentum, and the AUD was drifting lower, and started to drop a bit faster. I then went short the AUD again (I should have not closed out in a panic in the first place! D'Oh!), only to see the AUD regain some ground. At this stage I gave up in disgust, closed out my position (again), and went to bed.



Today the AUD has slowly drifted back down to yesterday's low of 0.8308, so if I had not bothered watching the screen last night and just kept my position open for 2 days instead of one day, I'd have actually made a good profit, rather than losing $255 in three losing trades in a row. My trading account is now down below $1,000 (after I transferred in a second $1,000 last week - bringing my total trading kitty to $2,000) so I can only trade A$50K rather than $100K. I think I'll just watch the market for a while before I attempt another trade. It will take a long time to claw back my losses. Trading is good fun, but it's turning out to be expensive entertainment.

Enough Wealth

Adventures in Day Trading - 11

May 13th, 2007 at 01:12 pm

My problem at the moment, aside from the fact that I'm losing money trading, is that I haven't been able to stick to a trading plan. After losing a large chunk of cash by holding a short position open for several days, only to finally close out just before the AUD started a major downtrend, I had decided that I wouldn't keep positions open when I couldn't monitor them - such as overnight or while I was at work. However, after dropping US$30 on a quick $100K AUD/USD spot trade on Friday morning (Buy @ 0.8256, closed out @ 0.8253), I managed to make back the $30 that evening, buying $100K @ 0.8280, and getting out at 0.8383. I was very nervous in that trade - after watching the AUD go up to 0.8386 I closed out when it dropped quickly to 0.8383. It then (of course) rapidly moved up to 0.8300, which would have made me $170 if I hadn't panicked at the slight drop earlier on. As this was at the top of the current trading band, I then Sold $100K at 0.8300, and was pleased to see it soon drop back to 0.8290 as expected. At this point I thought about closing out a making a $100 profit on the day and calling it quits, but, having missed out on making $170 by closing my earlier position too soon, I decided to hold on to see if it dropped all the way back down to 0.8380.

The AUD then started a major uptrend (although it didn't seem like that at the start!), so I was soon in the red on this open short position when the AUD climbed above 0.8300. I missed a few opportunities to close out at 0.8300 on dips, as I was still hoping to make a profit on this trade, and in the end sat by and watched it climb to over 0.8330 shortly before the market closed. It did drop back to 0.8322, so I then dumped my earlier resolve to not leave positions open, and left my $100K short position on the AUD open while the market has been closed over the weekend. I'm now waiting to see if the AUD drops against the USD when the market opens in a couple of hours. The AUD seems to be at the high end of the recent trading range, so it seems more likely to drop back further than to resume rising. BUT, this is based on historical patterns, which are not really and guide to future behaviour if something fundamental suddenly changes. Just ask the guys who used to work for Long Term Capital Management.

Trading this way is totally illogical - I seem to be just mentally crossing my fingers and hoping things turn my way when I'm in a losing trade, rather than closing out when my loss reaches $100 on a trade, which was my original trading plan. I think the fact that on the some of my first trades where I did close out on a $100 loss, holding on to the position for a few more minutes would have seen the trend reverse and my losses recover shook my faith in that plan. As it is, I'm making trading decisions on an ad hoc basis ("gut feel"). So far it seems that the old adage that "people don't plan to fail, they just fail to plan" is holding true for my day trading.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 10

May 10th, 2007 at 03:31 pm

This morning my short position of $50K AUD/USD spot at 0.8244 wasn't looking too bad - although the price had gone as high as 0.8308 a couple of times, in the morning it had dropped to around 0.8372 and from the 1 month plot it was looking like it might drop back further and erase my losses on this trade. Unfortunately while I was at work a lower than expected unemployment figure of 4.4% came out (general expectation had been steady at 4.5%) which meant the chances of another interest rate rise later in the year increased. I'm not sure exactly why this translated into an immediate 0.5c gain in the AUD, but it did - so in the afternoon at work I could see the AUD bobbing around 0.8315-0.8325, but I was willing to hang on for a bit longer. However, around 5pm the AUD started appeciating rapidly against the USD, so I rang home and got DW to close out my position at 0.8334, crystallising a US$450 loss!

Of course the AUD started dropping back slightly shortly after I'd bought back my $50K position. This evening it has been oscillating between 0.8310 and 0.8335, so I made a few $50K sells above 0.8322, and buys around 0.8312. In three trades I made back US$100, but I still have a lot of work to do to make back the $450 I lost by sticking with a bad position for the past three days.



I'm currently short AUD$100K at 0.8320, as the AUD is close to recent all time highs, and, having gone up over 1c in the past few days, it has a good chance of dipping back to below 0.8320 in the next few hours. If it doesn't, and starts going above 0.8330 again I'll have to close out at another loss, as I'm not game to leave my positions open while I'm asleep or at work after this recent fiasco.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 9

May 9th, 2007 at 03:32 pm

I haven't posted about my forex trading for a couple of days because I'm sitting on an open short position that is in the red. Having made several trades which I closed out once my losses exceeded my planned stop-loss of $100, only to see the price move in my favour shortly afterwards, I decided that I wouldn't close out my position this time. The theory being that while the AUD/USD was bouncing up and down within a trading range, a position opened somewhere near the middle of the trading range should eventually become profitable if I held on long enough.

Of course, having sold $50,000 AUD at 0.8244, after a run-up from previous lows around 0.8200, the AUD then rose slightly and, despite dropping slowly over the next few hours didn't drop enough to make it worthwhile closing out my position. I then decided to go to bed and see what had happened by morning. Of course the worst case scenario resulted - with the AUD appreciating strongly while I was asleep. Sticking to my new "plan" to just ride out this setback until the AUD dropped back down, I've now been watching the AUD hover around the 0.8280-0.8300 region for a couple of days.



My email box is getting full of margin call and liquidation warnings from CMC Markets every time my cash balance drops below the required 1% margin. But I'm not too fussed if they liquidate my position as I'll only lose $1,000 maximum (my initial account balance). And this would only happen if the AUD goes above 0.8360, which would be close to a 17-year high.

Meanwhile, my real investments are all doing nicely - my "Little Book" Portfolio of US stocks is doing quite well with the annualised ROI getting above 20%, even after deducting the exhorbitant buying and selling costs. My Aussie stock portfolio is also doing very well, with the local market hitting new all time highs, which is also boosting my retirement account. And my real estate is also moving up again, now that the Sydney housing market is starting to recover.

BTW - my sitemeter stats for enoughwealth.com registered a huge spike today. All from a mention of one of my posts on The Simple Dollar"! I usually get around 50 visitors each day - so far I've already had 126 visitors in three hours!

Text is Enough Wealth and Link is "http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - 8

May 5th, 2007 at 04:23 am

We missed out on the big slide in the Aussie dollar yesterday (it was caused by the RBA announcing that inflation was lower than expected last quarter and had a good chance of staying under control for the next 12-18 months). DW was out of the house during the day and by the time she got home and started trading the dollar had already dropped to around USD$0.8190. I did a $50K trade when it spiked up to 0.8212, and for a while it was looking good as the AUD slide back down to 0.8202 - I was holding on hoping it would go back down to previous intraday lows of around 0.8175 or so. However, it slowly began to climb back up, and I eventually closed out at 0.8208, making just USD$20 on the trade.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - day 7

April 27th, 2007 at 02:48 pm

Yesterday's second trade was looking good for a while - the AUD had dropped from 0.8265 to 0.8250 USD. I thought about closing out at that point and making a $150 profit, which would have more than made up for the earlier $110 loss. However, as is always a danger, I got greedy and changed my mental exit point to 0.8240, as the trend seemed to be continuing. Of course the AUD then changed direction and I ended up watching it ever so slowly drift up, with occasional dips to give me false hope, until I gave up and sold out at 0.8264, netting a minimal $10 profit.

Today DW had made three trades before I got home from work, each one placed just before an apparent trend reversed direction. Her fourth trade was a more successful and she managed to claw back most of today's losses before calling it quits. I then logged in to my account and was going to also buy the AUD and hope the strong uptrend continued, but by the time I logged in there was a pause and a slight drop in the AUD. I should have waited a while and watched what happened next, but instead I decided it was likely to be a pullback, so I sold the AUD at 0.8306 instead. It then resumed it's uptrend and I intended to wait a while and see if it peaked and started to drop as expected. Unfortunately I decided to bail out when it reached 0.8334 (a $280 loss!), and then sat by the uptrend did finally peter out and it started to drop.

By this time my account balance was below my intial A$1000 level, so I could no longer trade A$100,000 on 1% margin - I instead sold A$50,000 and am sitting here hoping that this time the expected correction will materialise and I make a small profit on this trade... It does appear to be dropping slowly at this time, unfortunately with a A$50,000 position opened at 0.8323 I'd only make back about 1/3 my loss if it retreats back to the level I initially sold at this evening.

If I lose my entire A$1000 trading stake I'll call it quits and do paper trading for a while.

Text is Enough Wealth and Link is http://enoughwealth.com
Enough Wealth

Adventures in Day Trading - day 6

April 26th, 2007 at 03:47 pm

DW has been on a trading hot streak since she opened her own account. She is now up almost 100% in just a few days. However, nine trades isn't a statistically valid sample - I'll reserve judgement on her trading "knack" until she's been at it for a couple of months.

My forex trading has been a disaster these past couple of days. Each time I've taken a position in what appears to be an established trend, then next few ticks are a major reversal. I'm now back to the starting capital, and every time I drop below $0 available margin with my $1,000 open position I get an automatically generated margin call email. Luckily I can just ignore these as I'll have a positive balance when I close my position (I wouldn't let it run to more than -$200 margin). The margin call emails warn that if I don't add in additional funds to bring my account back into the positive they may close out my open positions - I've no idea how large a negative margin would be required to trigger this. Perhaps if a went to -$1000 margin, so my overall account balance was $0, I'd automatically be closed out. Hopefully I'll never be in this position. At the moment I'm short the AUD with an apparent down trend underway - we'll see if this time my luck changes and the trend continues for a while, rather than reversing as soon as I've taken a position!



Text is Current Trading Portfolio Status and Link is
Current Trading Portfolio Status

Text is Enough Wealth and Link is
Enough Wealth

Day Trading Performance

April 25th, 2007 at 05:02 am

I'm tracking my forex trading with a google spreadsheet. It includes some stats on the ration of winning:losing trades, % winning trades, avg. amount gained in winning trades, and avg. amount lost in losing trades. I'll insert the spreadsheet in this post and link to this post if future updates about specific trading activity.

Text is Day Trading Performance and Link is
Day Trading Performance

Text is Enough Wealth and Link is
Enough Wealth

Adventures in Day Trading - day 5

April 24th, 2007 at 12:15 pm

I decided to do another trade last night after all, and promptly lost another USD$80 - the price had been bouncing up and down and I thought I could sell at the top of a bounce and claw back some of my previous loss. Of course, it then stopped bouncing and went up!

This morning my wife's account was activated after her A$1000 deposit had been processed. The AUD started a rapid drop immediately after the latest quarterly CPI figure came out at 11am - only a 0.1% rise for the quarter. This means that inflation seems to have moderated, so it's less likely that the Reserve Bank will raise interest rates next month after all. It was interesting to see that this news had exactly opposite effects on the AUD and the stock market:



Although after the initial spike up the market drifted back down, whereas the drop in the AUD was more prolonged. DW put in a SELL order for AUD$100,000 (costing $1,000 for the 1% margin) when the Aussie dollar started to slide, but, although the order said "executed" it didn't appear in her FX positions listing. After checking with CMC markets help desk it turned out that her bank had deducted $1.50 fee for the BPay transfer, so her trading account only had A$998.50 available. Due to insufficient funds her $1000 SELL order was automatically cancelled! By the time she'd worked this all out, and decided to trade a $50,000 position instead, the drop in the AUD had bottomed out. DW was quite annoyed that she missed out on a potential $250 gain. She made a series of small trades this evening, but there was no clear trend and she lost on several trades. Her most recent trade is making money as the AUD recovers - so she may break even on today's trades.

Text is Enough Wealth and Link is
Enough Wealth