Forex, Technical Analysis and Riches Be Thine
I will share with folks what I had learnt a few years back on a special chart technique which I cannot name because it is supposedly patented somewhere and given the global reach of the internet, it would probably enforceable even if the probability of the patent is questionable but we should nonetheless give the creator benefit of the doubt.
For he is a very old man and claimed to be 83 and looked like he could barely see through his 2 inch thick glasses but his zest and enthusiasm was more than a match for all of us in the audience, who range from 1-3 generations behind him. The fact that he was conducting the workshop for free was evidence enough of his passion that I felt privileged to be on the special invite list, given that the workshop was intended informally for the staff of a certain bank.
Naturally my motivation did not stem from the fact that an old chap was about to give a free class. It was that the fellow had a special technique, the fact that he was apparently rich beyond words from years of its application in his daily trading and that he was about to impart his money making recipe at no cost to the lucky audience as a master would do to his apprentices.
Thus, a few of us went along, quite eagerly with greedy minds, lugging the required equipment of laptops and making sure our wifis worked, to the meeting room of a condominium that someone had generously provided for the 3 hour long event.
We were told that it was only the first season although the method was simple enough to understand but very few have successfully passed his test at the end of the series of 3 workshops. And those who did went on to make millions on their own merits, armed with no other knowledge but the secret method. There is no requirement to have anything but the knowledge that foreign exchange was all about currency pairs and their values relative to each other.
The first step. We were all made to sign up trial trading accounts with a certain forex trading platform which was harmless enough. Our accounts had to be tagged to his for him to monitor our performances and to grade us in the end and if we pass successfully, we will be issued with a certificate that qualifies as a trading licence that is recognised by many banks in Taiwan, where he was from.
One hour on, nothing on the method yet. About a dozen stories of people around the world who had profited in the millions, each time, from their assiduous use of the technique. All had started on small capital bases of a few thousand and went on to make fortunes, all risk free because positions that were entered had to be exited within minutes. There are 3 types of signals – small profits, medium profits and huge profits.
Small profits = 15-30 bp ie. US$15,000-30,000 per million EURUSD traded. These occur 20-30 times a day.
Medium profits = 40-100 bp ie. US$50,000 – 100,000 per million EURUSD traded. These occur less frequently.
Big profits = >100 bp ie. > US$100,000 per million EURUSD traded. These occur once in a few weeks.
Coffee and curry puff break time and we were getting excited. US$15,000-30,000 a day was good enough for me and that US$100,000 maybe once a month.
Finally, it was unveiled – Candlesticks!
Ye Gods and Little Fishes! It was so simple.
Just pull out 3 charts with 3 candlesticks of different time frames – the 1 minute, 5 minute and 15 minute.
- Currency pair must be a Liquid one, thus EURUSD was suggested or AUDUSD. He has a dislike for USDJPY, something that perhaps people of his generation will empathise with.
- One must be in a quiet and undisturbed environment with the Air Con switched on ! and reliable high speed internet with 2 24″ screens and a TV with CNBC or Bloomberg television. (I have that set-up at home!)
- One must read his recommended website for economic announcements daily and note the times of economic releases (his favourite was the US Non Farm Payrolls)
Eyes glued to the screens, just wait for the 1 minute chart to make a full reversal from the previous minute, the 5 minute chart to be identical to the previous 5 minute and the 15 minute chart to look like a flat line. (I do not use the actual terms used for the reasons of the patent)
Spring into action and go with the 1 minute flow! Hit large and wait. Once the the 1 minute chart turns again, get out and keep on staring for the next trade.
I pulled out my iPad, for I had a live trading account then and did a discrete trade for a negligible trade US$50k and voila, 100 bucks in 2 minutes.
Questions flew. The most popular one is about “the dot”. There you go.
I believe we were then sworn to secrecy which is why I have not gone into lengthy details and I got distracted halfway by the sniggering of a friend I was seated beside, Eric, who is a pretty well-known chart technician in certain banking circles. And sad to say, I did not manage to attend the next 2 workshops because of other commitments which meant I lost the opportunity to ever master the technique fully even though my friends who went for the rest of the classes told me I was not missing a lot and the bunch of them did not succeed in attaining that elusive certificate even though they had about a century worth of forex trading experience between the lot of them.
I tried to experiment at home, to quantify the technique into programmable rules for the Metatrader, an automated trading system that will trade on your rules while you enjoy a game of golf or cup of coffee, but alas, my limited understanding of the concept was obviously flawed because it failed back-testing.
So much for what would have been the deal of a lifetime.
Why is Technical Analysis Important to Me?
Some bond traders use charts, the government bond chaps look at it every other minute for their work as with the interest rate chaps. Credit traders mostly do without charts.
I was raised in the dealing room to look at charts when I started on forex and forwards and they have followed me even into the credit world.
For you see, every little bit counts and when you are trading a corporate bond, it would be good to look at the chart of the equity or revenue streams. And looking at the trends of government bond and interest rates are ultimately rather important in deciding when to buy a corporate bond!
In the current age of a correlated marketplace, ignore forex and the rest of the products you do not own at Your Own Peril because asset prices are moving in tandem more than ever.
The purists argue that charts subsume the rests of the analyses but that only applies for the forex market because we can safely assume that 90% of the forex world use charts in whatever forms or combinations to trade speculatively in a US$ 5 trillion a day market where 99% of the turnover is attributed to speculation.
I could easily go on to talk another 2 pages on the other methods some use from astronomy and astrology, the lunar phases and seasons but I shall stop here and meander into the topic of foreign exchange trading and why I was so excited.
The segment below is taken from tradehaven:
Forex is the only way to get rich for one without capital, but with higher odds than the lottery and with the potential to make capital multiplying returns.
Yes. That is true.
Because FX is a zero sum game, unlike bonds, stocks, commodities and the rest whose values can be inflated.
Foreign exchange is the value of one currency against another which means it is a relative value. We can say bonds are relative too because bond prices go up when interest rates fall making the bond holders richer and the issuer suffers an opportunity loss that, luckily, is not accounted for and is not a genuine loss as far as most issuers are concerned because you cannot issue bonds by the minute.
Given that 99% of the 4.3 trillion dollars changing hands each day in foreign exchange transactions are purely speculative, one person must win while the other must lose.
There are many roads to riches but not all doors are open to all of us.
- Earned income through work by creating value
- Asset appreciation – land, real estate, bonds, stocks, gold etc
- Intellectual assets – e.g. intellectual property, software etc
- Goods production using the 2 assets mentioned above
All items above except for Earned Income, depend on access to capital, just as earned income depends on the individual capital – if you are strong enough to build houses or smart enough to write complex codes etc.
The other methods to riches are in the form of wealth transfers.
- Robbery and Theft (illegal)
FX is not something you want to throw your entire lot in for I know of very few successful traders. It makes sense that there are few because few become very rich when many become very poor. That is the world of the zero sum game for you.
I am just iterating that this is probably the only financial product with decent odds (50-50 odds because price goes UP or DOWN) compared to the casino or the lottery, and ruling out the illegal forms of wealth transfer.
And it is not easy too!
Do note that I am not advocating to anyone out there that this is one of the cheapest ways to get rich without much capital or having to work for your wealth especially if you had your grandmother’s secret laksa sauce to sell or have invented a replacement for the iPhone or Facebook in our lives.
It is a collection of my random thoughts on ways for the common man to get rich, ignoring the risk elements and assuming, like we all have, wrongly that we have a perfect marketplace given that the latest is that the authorities are lining banks for the next big round of fines for FX manipulation (note that victims are not compensated).
Back To Reality
I am still on my half-hearted hunt for the ultimate system that my successful trader friends will only share half-heartedly with me, for obvious reasons. I do not blame them for the quest has to be undertaken in earnest with each individual for themselves, learning and sharing with others along the way. The lazy route would be to pay someone to do it for you which requires a tad more capital.
I feel for my lost opportunity daily from the barrage of emails that I receive from that confounded trial account but I have decided to do something about it in hosting a forex seminar of my own, with sniggering Eric as the speaker. And vengeance (or rather, profits) shall be mine at last!