The Musings of Faith

Trading New Pairs

So I’ve decided to expand my portfolio and trade the GBP/AUD and the GBP/CHF. So a few things I do before placing any trades on a currency pair that I have never traded before.

1. Watch Price Action

I watch price action. And I watch it for a couple weeks.

2. Study The Daily Chart

I am a swing trader and the daily chart is my bible and foundation for all my trading decisions. I study the daily chart for 3 things: 

1. Trend
2. Trend waves
3. Support and Resistance levels

3. Study The Hourly Chart

On the hourly chart, I study the current price action. I’ll check for support and resistance and draw Fibonacci levels to see how price behaves or behaved at those levels.

4. Study The Fundamentals

I think the most important aspect of any pair’s fundamentals is how the central banks stack up against each other.

5. Trade It!

It can be argued that you should trade a new currency pair in a demo account before you trade it live. I think it depends on a trader’s level of comfort and expertise to make that determination. It might be prudent, however, to trade smaller positions as you get to know the pair and how it moves and reacts to news releases.

This checklist can be adjusted depending on a trader’s style and preferred timeframes. But I think it is a good approach to any new trading or investment vehicle.

I HATE Changing Brokers

I hate looking for a new broker. My word, it is exhausting. I remember my first broker experience and I remember reading Trading for a Living by Alexander Elder. Elder stresses that traders must control costs (one of the few factor we can control) and to change brokers if necessary to do so. Every trader is different so my main criteria for a broker is:

• No slippage and if so, then be courteous enough to ask me if I want to continue on with a requoted price
• No commission
• Not a market maker
• Offers GBP/USD, EUR/GBP AND GBP/AUD. I wanted to start trading the GBP/AUD but my former (and current) broker didn’t (don’t) offer it.

Spreads are not a huge deal for me. If you can deliver on the above, then I don’t mind paying for it (via higher spreads). Because trading with FXCM left me so scarred, I am very wary of the big bank market makers. However, with the new CFTC regulations, I can no longer rule them out as they will probably be the only ones left standing. Also, many smaller brokers are just introducing brokers to the market makers anyway so I may as well deal direct, if I must.

Day 1

My search started with a website that compares brokers. I found a great website in Forex Peace Army (FPA). You always have to take rating and reviews with a grain of salt and try to determine between real traders and the whiners. But it does help to have 2nd opinions as they certainly do help allay doubts and some uncertainties. Through this painstaking search I did find Zecco Forex (through the Google ad, I’ll admit lol). Since Stocktwits partners with Zecco and they met my above criteria, I decided to give their platform a try.

Days 2 & 3

After crawling FPA and checking out different brokers for a day, there had to be a better way. And there is now! I finally turned to Twitter. I have a wonderful crew of traders there so why not ask them? I did and got a slew of recommendations:

• Advanced Markets
• dbfx
• Oanda
• PFGBEST.com
• MB Trading
• Dukascopy
• MIG Bank
• InterbankFX
• Interactive Brokers
• thinkorswim
• Forex.com
• Saxo
• twowayspreads.com
• CitiFXPro

I traded with Forex.com early in my career - don’t like them. In my experience, they have a tendency to permanently widen your spreads once you are trading well. I have an account with InterbankFX already and not too crazy about MT4 (sorry folks). So that left me to judge the remaining brokers based on my criteria. (Most of the links are directly to the page that helped make my decision.)

• Advanced Markets - They have commissions based on initial deposit (which is unfair in my opinion) and trading volume (which as a swing trader I won’t make the cut).
• dbfx - Thanks to the reviews on FPA, it looks like dbfx works through FXCM. I LOOOATHE FXCM.
• Oanda - They meet my criteria though they *may* be a market maker. And I can trade on the iPad?! Beautiful.
• PFGBEST.com - I can’t find any information on their website about fees, spreads, or any other costs involved. That’s a big fail.
• MB Trading - They have commissions. 4 different commissions to be exact. Too much nickel-and-diming for my taste.
• Dukascopy - They have commissions based on initial deposit (which is unfair in my opinion) and trading volume (which as a swing trader I won’t make the cut).
• MIG Bank - They have different leverage, margin requirements AND spreads based on your initial deposit. Too much differentiation for my liking.
• Interactive Brokers - They charge a commission. But it seems fair so I am willing to give them a try. I’m not used to commissions in this market so I am biased against paying them. However, things are changing with the new CFTC regulations so maybe it’s an idea I should get used to. Plus, after researching so many brokers, it seems that commissions may actually be to my benefit.
• thinkorswim - My equity trading friend complained about this platform just last week. Plus, I don’t understand their commission structure - too complicated.
• Saxo - They have a required distance on your stops. Not too crucial for me, as I am not a scalper, but 25 pips minimum stop on my favorite pair is kind of a deal breaker for me.
• twowayspreads.com - I just don’t get it. Are they a broker or a rebate program? Believe it or not, there are forex rebate programs out there. And I’m not going to figure it out with my money.
• CitiFXPro - I researched them a couple years ago. I consider them a market maker. Plus, I wouldn’t bank with Citibank. There is no way I’ll trade with them.

Day 4

Having whittled away at this list, I tried out the platforms of those left standing via a demo account with each broker.

• Interactive Brokers - YIKES! Where are the charts? So confusing as the platform allows one to trade stocks, futures, options. Too many options (no pun intended) for this simple forex girl.
• Oanda - I like the platform. Not thrilled with the chart tools but I think I can work with it.
• Zecco Forex - I love the access to all the different gold charts! Gold/EUR, Gold/GBP!!! That’s about it though. The charting tools here are even worse than Oanda. Plus, they are powered by Forex.com. But the gold charts do keep them in the running.

I plan on trying out these platforms for all of this week but I think I have made a decision.

Conclusion

I like things simple just like in my trading. When it starts to get complicated, whether it was the platform or the fees schedule, I bail. I will miss MGForex. Only time will tell if I made a good choice. If not, I will give Saxo and Advanced Markets another look. I’m not afraid to change brokers even if it is a painful process. As a trader, neither should you.

Greed

I got greedy last week. I admit it. But I didn’t start the week like that. Quite contrary, I approached the markets very humbly having wrongly made a bear call on the GBP/USD last week. But even in analyzing a bear case, I rightly saw the clear signals of the beginning of bull run that took price above 1.5250.

Moral of the story: Plan your trade.

Once the price break above 1.5250 happened, I traded the new trend that took price from 1.4946 to 1.5070 with very shallow retracements. I set targets very tentatively at all the resistance levels (1.5320, 1.5460, 1.55). A trade that developed the course of the week was increasingly profitable. Sounds good so far.

Moral of the story: Trade your plan.

But my ego allowed pips to blind me to the fact that I didn’t have a solid action plan for 1.55. I expected 1.55 would be met with resistance but failed to establish what I should actually do if I was still in a trade because my target was not achieved in addition to what I would do if my target was achieved. I needed to not only pay attention to that level but I needed to exit my trades after the first attempt at that level took prices below 1.5400.

Instead, greed told me that this was only a first failed attempt that would surely end with another successful assault at 1.55. This had been a strong rally all week, after all. Do you hear the insane sanity? Rational thought should have led to the conclusion that it had been a solid run all week and that 1.55 is a major half point level that would be met with resistance. And with resistance would come a correction so rather than looking for more longs, I should have exited my longs and looked where I could reset longs or go short for the correction. In addition, I set my limit too aggressively at 1.55 so my limit was missed by 30 pips.

My greed caused me to add to the trade rather than exit it. Now instead of sitting on a mountain of pips, I am having to manage now a loosing position.

Moral of the story: Don’t add to a position. Rather, build a position for a trade and manage that position until the trade is completed.

Please note that these rules and morals are specifically geared toward me and my performance last week. Please do trade what you see.