tips & trading strategies for the currency market -- kathy lien 2007.pdf · tips & trading...

Tips & Trading Tips & Trading Strategies for the Strategies for the Currency MarketCurrency Market

Kathy Lien Kathy Lien Chief StrategistChief Strategist

DisclaimerDisclaimerLeveraged foreign exchange and options trading carries a significant level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign exchange and option trading, and seek advice from an independent financial advisor if you have any doubts.The contents provided in this seminar are subject to change at any time without notice.

There is no guarantee that the systems, trading techniques, FX PowerCourse, trading methods, indicators or other information presented at this seminar will result in profits or not result in losses. The content is provided for informational purposes only and is not intended as a trading recommendation.

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Learn the Discipline of Learn the Discipline of Trading ProsTrading Pros

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1) Define a Strategy

2) Money Management Rules

3) TEST, TEST, TEST

4) Understand Performance

5) Understand Drawdown

6) Improvement

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Important ConsiderationsImportant Considerations

• Fundamental or Technical

• Range / Trend or Breakout

• Long Term, Medium Term or Short Term

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1) Define a Strategy 1) Define a Strategy –– Part 1Part 1

• What Currencies Will You Trade?

• Majors vs. Crosses

• What Time Frame Will You Trade?

• 15 Min, Hourly or Daily Charts?

• Will You Hold Positions After 5pm

EST, Over the Weekend?K

1) Define a Strategy 1) Define a Strategy –– Part 2Part 2

• Multiple Entry / Multiple Exits?

• How Low are You Willing to Buy?

• What Risk / Reward Parameters?

• When to Take Profits, Trail Stops,

Close the Position

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2) Money Management Rules2) Money Management Rules

• Everything Needs to be Back Tested!

• Coding – Easy Language

• Review the Charts, Look for at Least 15-20

Examples > What Happened?

• Look at a More Granular Time Frame

• If it doesnIf it doesn’’t make money on a demo account, it t make money on a demo account, it

probably wonprobably won’’t make money trading a live accountt make money trading a live accountK

3) TEST, TEST, TEST3) TEST, TEST, TEST

• What is the Percentage of Profitable

Trades that you can Expect?

• What is the Profit Factor?

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4) Understand Performance4) Understand Performance

• What is the average drawdown needed on

the trade?

• What is the Biggest Drawdown?

• Is that on the Close of the Trade or

Intraday?

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5) Understand Drawdown5) Understand Drawdown

The Table of DoomThe Table of Doom

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1000%90%400%75%100%50%33%25%

Amount of Return Necessary to Restore to Original Equity Value

Amount of Equity Lost

Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.

The Table of DoomThe Table of Doom

$5,904.90$7,737.81$9,039.21$9,509.901% Loss$6,561.00$8,145.06$9,223.68$9,605.961% Loss$7,290.00$8,573.75$9,411.92$9,702.991% Loss$8,100.00$9,025.00$9,604.00$9,801.001% Loss$9,000.00$9,500.00$9,800.00$9,900.001% Loss

$10,000.00$10,000.00$10,000.00$10,000.00Starting Value

10:1 Leverage

5:1 Leverage

2:1 Leverage

No Leverage

5% To Recover 5% To Recover $10,000$10,000

70% To Recover70% To Recover$10,000$10,000

• ‘‘What worksWhat works’’ and and ‘‘What doesnWhat doesn’’tt’’

• When are the Losing Trades Usually

Made?

• Avoid News

• Limit to Trading to Specific Time of Day

• Cutting Losses EarlierK

6) Improvement6) Improvement

:Establish realistic goals

Top money managers risk no more than 5% of Top money managers risk no more than 5% of total account equitytotal account equityProfessional money managers (try) to beat the Professional money managers (try) to beat the S&P which averages around 8S&P which averages around 8--12% annually12% annuallyHow much do I hope to make every day, How much do I hope to make every day, month, and year?month, and year?

Realistic ResultsRealistic Results

Barclay Currency Traders IndexBarclay Currency Traders Index

StrategiesStrategies

Setups, Setups, Setups!Setups, Setups, Setups!

Seven Day Extension Fade – Statistical Significance

Trading Rules

• Look for 7 consecutive bars of weakness (where each bar’s close is below the prior)

• Buy at the open of the next bar• Place stop at the low of the seventh bar minus 10 pips• First target is amount risked, move stop on remaining half to

breakeven • Second target is three times the amount risked

**Reverse for ShortB

Seven Day Extension Fade Seven Day Extension Fade –– AUD/CADAUD/CAD

Seven Day Extension Fade Seven Day Extension Fade –– NZD/USDNZD/USD

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Seven Day Extension Fade Seven Day Extension Fade –– GBP/USDGBP/USD

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Seven Day Extension Fade Seven Day Extension Fade ––GBP/USD HourlyGBP/USD Hourly

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Seven Day Extension Fade Seven Day Extension Fade –– Failed TradeFailed Trade

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- 17 pips

Stop at 1.2974

Long Trade:Long Trade:Look for currency pair to be trading below the 20Look for currency pair to be trading below the 20--period EMA and period EMA and MACD to be negativeMACD to be negativeWait for price to cross above the 20Wait for price to cross above the 20--period EMA, make sure that period EMA, make sure that MACD is either in the process of crossing from negative to positMACD is either in the process of crossing from negative to positive ive or have crossed into positive territory no longer than 5 bars agor have crossed into positive territory no longer than 5 bars agooGo long 10 pips above the 20Go long 10 pips above the 20--period EMAperiod EMAFor aggressive trade, place stop at swing low on 5 minute chart.For aggressive trade, place stop at swing low on 5 minute chart. For For conservative trade, place stop 20 pips below 20conservative trade, place stop 20 pips below 20--period EMAperiod EMASell half of position at entry plus amount risked, move stop on Sell half of position at entry plus amount risked, move stop on second half to breakevensecond half to breakevenTrail stop by higher of breakeven or 20Trail stop by higher of breakeven or 20--period EMA minus 15 pipsperiod EMA minus 15 pips

Momentum Burst

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Tick IndicatorTick Indicator

Trade Entry @ 1.2044 + 10 pips = 1.2054

Stop = 1.2044-20 = 1.2024

T1 = 1.2044+30=1.2074

(Hit 30 min later)

T2 = 20 EMA – 15 Pips

(Hit at 1.2157)

Total Profit 71.5 pips

Tick IndicatorTick Indicator

Trade Entry @ 0.6294

Stop = 20-EMA plus 20 Pips = 0.6321

T1 = Entry plus amount risked = 0.6267 (Hit 2hr)

T2 = 20 EMA + 15 Pips (Hit at 0.6262)

Total Profit 29.5 pips

Tick IndicatorTick Indicator

Trade Entry @ 1.5713

Stop = 1.5713 + 20 pips = 1.5733

T1 = 1.5711 – amount risked = 1.5689

Missed T1 Stopped out for 22 pip loss

Our Motto:Our Motto:Combining Technical Combining Technical With FundamentalsWith Fundamentals

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Trading in Action = Anatomy of a TradeTrading in Action = Anatomy of a TradeShort AUD/USD

Fundamental Reasons

• Looking for a strong October non-farm payrolls – Recent Jobless claims, ADP and Hudson Employment Reports were very strong

Technical Reasons

• Statistical Significance – Over Past 10 Yrs, AUD/USD saw a 7 day move 14 times, with only 3 of those 14 lasting for longer than 7 days

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AUD/USD ChartAUD/USD Chart

BK

Went short AUD/USD at 0.7735, 0.7765 stop, exited ½ at 0.7712, ½ at 0.7687 = 58 pips in 24 hours.

Where to Find Trading Where to Find Trading Recommendations?Recommendations?

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Intelligent Tools From DailyFX.comIntelligent Tools From DailyFX.com

Picking Tops and BottomsPicking Tops and Bottoms

1. Picking Turn Trades Can be Dangerous and Frustrating

2. Simple Overbought and Oversold Measures are not Enough

3. Yet Taken Properly these Trades Can be Very Lucrative

Up 2400 Pips Since May!

Picking Tops and BottomsPicking Tops and Bottoms

Picking Tops and BottomsPicking Tops and Bottoms

Dynamic Carry Trade IndexDynamic Carry Trade Index

• Why Trade the Carry?

• Most Successful Strategy Over Last 3 Years

• Generates Positive Interest Every Day

• Up 593 Pips Last Week

Dynamic Carry Trade IndexDynamic Carry Trade Index

Trading the NewsTrading the News

1. Shows the Past Three Event and its Price Reaction

2. Uses Highly Disciplined Approach for Both Entry and Exit

3. Provides Possible Scenarios for both Upward and Downward Surprises

Trading the NewsTrading the News

Trading the NewsTrading the News

Trading the NewsTrading the News

Durable Goods

-7.8%a vs. -3.0%e

Ex trans

-3.1% vs -0.2%e

60 pips in 12 hours

Why Wait? Why Wait?

Get these Ideas on a Get these Ideas on a DAILY Basis!DAILY Basis!

BKForexBKForex AdvisorAdvisorAs a BKForex Advisor Subscriber, you will get:

1) Between 2 and 3 Clear Cut Trade Ideas Each Week 2) The Current Technical Trends in the Currency

Market Our Personal Trading Bias on the Key Economic

News Releases of the Week 3) Weekly Fundamental and Technical Webcast -

Chart and Data Analysis 4) Educational Screen casts of Some our Favorite

Technical Setups 5) Bi-Weekly Q and A Chat Sessions with Boris and

Kathy to Discuss Trading Ideas and Markets 6) Live Trading with Boris Using High Frequency

Strategies for Effective Short Term Trading 7) Free Copy of our Book - High Probability Trading

for the Currency Market - $89 Value

Subscribe for $99 / Month –Cancel Anytime!

12 Keys to Trading Success

Rob Chuck Roland

Lesson 1If the News Is Good

But The Stock Plummets Buy the Crash

Dana Allen

Lesson 1Citibank (NYSE:C) October 15, 2007

Earnings 47 cents1000 Shares = $1000 in 2

hours

Market Expects 44 cents

Lesson 2Know Yourself

Know Your Trade

Rob Booker

Lesson 2

I am a 50- to 100-pip-a-week trader. Meaning I have pretty muchdecided that that’s about the limits of my human capacity and over

50 to 100, I start getting a little bit crazy. I become a little less disciplined and a little bit more euphoric to put it mildly. So, I have

not generally done a lot to increase that pip target overtime, even though systems that I build might produce bigger gains.

Lesson 3Revenge is NEVER Sweet

Chuck Hays

Lesson 3

Revenge trades are the most costly trades. If you have a badtrade and you try to make it all back at one time, you’re goingto lose more money. I think I learned from experience that the

best thing to do is to try and get back and get even a little bit at a time

Lesson 4Triple Your Demo Twice Before

Trading for Real

Hoosain Harneker

Lesson 4

Nobody can master a professional skill right away. Doctors practice on cadavers, lawyers spend countless hours in moot court, and mechanics toil for months in classroom garages. Practice does not guarantee success but

lack of practice almost always ensures failure.

Lesson 5Don’t Lose Your Cool —

Always Use a Stop

Franki Law

Lesson 5

Lesson 6Protect Your Capital Protect

Yourself

Indi Jones

Lesson 6

Clint Eastwood would be a great commodity trader because hetold the Million Dollar Baby that rule number one in boxing is toprotect yourself. And I think the same is true in trading. If youwant to trade, your capital is everything. So, if you want to be a

great trader, you have got to protect that capital. failure.

Lesson 7Averaging DOWN Is for Losers,

but Averaging IN Can Be the Difference Between Success and Failure

Roland Campbell

Lesson 7

Lesson 8Tops or Bottoms Are Only

Evident in Hindsight

Tyrone Ball

Lesson 8

Lesson 9Turn Happens Only Once But

Trend Is Continuous

Ashkan Balour

Lesson 9

Lesson 10The Last 25 Percent of the Position Can Make A Disproportionate Contribution

to Your Overall Profit

Paul Willette

Lesson 105 Contracts - 1.00 point profit5 Contracts - 2.00 point profit5 Contracts - 3.00 point profit

15 Contracts=30 points

3 contracts - 5.00 point profit2 Contracts - 7.00 point profit

5 Contracts=29 points

Last 25% makes nearly half the profit

Lesson 11Make Your Money Work

for You

Marcelino Livian

Lesson 11

Much like the largest money center banks and the savviest hedge funds in the world, Marcelino always looks to get paid while

holding a position.

Lesson 12Beat Computers at Their Own Game

By Using Probative Orders

Steve Ickow

Lesson 12

Whether you are a machine or a human being, when it comes to financial markets ultimately you are either a buyer or a seller. By

constantly probing the logic of the machines, Steve Ickow is able to figure out their true intentions and turn that information into

profitable trades.

It ain’t about how hard you hit, it’s about how hard you can get hit and keep moving forward. That’s how

winning is done!—Rocky Balboa

Thank You,Thank You,Good Luck And Good TradingGood Luck And Good Trading