FX Trading Results for November

Trading results have turned much better after 2 consecutive months of losses. 9.6% increase month on month and a 54.9% increase from my initial capital. In my view, the following points has helped me to improve my November trading results.
i) Wait patiently for trade opportunity without jumping in on impulse
ii) As a result of i), a drastic decrease in the number of trades placed
iii) More disciplined in following through the trading strategy.

I am expecting my December results to be positive too. Gunning for a 15% increase month on month.

Quitting a job to become a full-time forex trader

My aspiration is to become a full-time trader in the future, if possible in 3 years time. Leaving job security for another profession that is full of risk and emotional trauma is not an easy thing to do. In addition, one must be prepared to accept loss of income when you hit a bad trading patch. A loss of income would result in a change in lifestyle as you obviously can't continue the same lavish lifestyle anymore.

In this post, I shall examine the financial concerns if I quitted my job and become a full-time trader.

Minimum capitalization
First and foremost, the first thing that came to my mind is if I were to quit my job and become a full-time trader, I would reasonably expect my new profession to bring in at least the same level of income as my previous job. That's what most people would expect when they job-hopped. Let's do some simple calculations with the following assumptions
i) Assuming that I am earning USD$4000 per month and USD$48000 a year (exclusive of bonus)
ii) For a single trade, I am gunning a single standard lot for a 35pips profit target with a 35pips stop loss.
iii) Assume 1pip gain per standard lot trade is equivalent to USD$10.
iv) For risk management, the maximum loss for each single trade should consist only 1% of my trading capital.

Firstly, let's see how many profitable trades per month i need in order to achieve USD$4000. We do not assume any loss trades in this calculations.
Minimum profitable trades per month = 4000/(35*10) = 11.4 trades per month
This will mean that I only need to have at least 3 profitable trades per week.
Next let's look at capitalization. The minimum capitalization I need would be
= dollar loss per trade/1% = 350/0.01=USD$35,000

Therefore, in order to achieve maintain my income stream, I need to execute 3 trades (each 1 standard lot) per week and have a minimum trading capital of USD$35,000. On the other hand, I can achieve my target of income stream with less number of trades per month by increasing my lot sizes to 2 or 3. However, my trading capital will have to increase since I am risking more dollars per trade by simply increasing my lot sizes.

What happens if I do not have any income stream from trading
If the above happens, what am I going to live on? Definitely before trading full-time, I need to prepare enough cash reserves so as to tide me over my daily life. But for how long should this cash reserves sustain? Let's say I put it at 2 years (This is a very optimisitic outlook).

Assuming that an income of USD$4000 per month is able to handle all my bills and daily expenses for the next 2 years (no consideration for inflation). That means I need to have a minimum cash reserves of USD$96,000 (4000*12*2).

Conclusion
With the above calculations in mind, the total amount of capital that I require to become a full-time trader is USD$131,000. This amount is considered quite big and to accumulate such an amount in 3 years is extremely difficult given a USD$4000 job. I sincerely hope that anyone who wants to become a full-time trader should at least consider the above 2 financial points.

Arriving at such a high figure do dampen my spirits a bit, but I forgot one thing! I am trading currently (although with a very small amount). But if I am able to achieve consistent results and grow my trading capital slowly, perhaps I can achieve the required capital solely from trading part-time while still holding a full-time job. Of course, it is easier said than done but at least I have not lost hope yet. :)

Weekly Newsletter by GotForex.com

I have subscribed to a free newsletter service by Rob Booker and friends. Saw some useful information in this weeks' newsletter that are beneficial to forex beginners. Have extracted some parts of it and shown it below. You can also subscribe to the newsletter by visiting http://www.gotforex.com/ or by clicking the title of the post above. Enjoy reading.

Excerpts from the newsletter(by Rob Booker, with Heidi Gold) :

Question One:"The currency markets are huge! Is there a never-ending supply of liquidity, running down through Manhattan through data pipes and into my computer?"
The answer is yes and no.Yes, the currency market is huge. There are estimates that say that billions -- or even trillions of dollars in notional value are traded every day in the currency markets. Are you part of that market? The answer might surprise you (read onward!). It's important to realize that although the "worldwide currency market" is trillions of dollars of Super Large Trading Enormity, you are not, as a retail currency trader, participating directly in that Super Large Enormous Market. When we place a trade through a retail forex dealer, that forex dealer is doing either one of two things: they are passing the trade directly on to another entity that acts as a counterparty to your dealer's trade (what is commonly called "Straight Through Processing"), or they are "warehousing" your trade, which means that they are keeping your trade on the books and then hedging against that trade by making their own trades with a larger bank.What I am saying is that:1. You are still speculating in foreign currency;2. But you are not trading directly into the worldwide huge massive Over The Counter market -- you are not trading directly with a bank, you are trading with a Forex Dealer who is ultimately laying off their risk with a bank or financial firm.Ok -- let's get on with the second part of the question. Is there a never-ending supply of liquidity in this market? Or, more specifically, shouldn't I be able to get a trade executed at any price, and any trade size, any time that I want? The answer is that there are "more liquid" times in the market; for example, during the hours of the New York and European mornings, there is generally more trading volume (and liquidity) than during the Asian session.Sometimes this means that at certain times of the day, there just aren't as many banks or trading partners that want to actually do business in the currency markets, and this can make it more difficult to get an order filled (and during these times you might see your order rejected more often).

Question Two:When does the currency market open on Sunday/Monday?
There is not one specific time that the currency market is "open" on Sunday (U.S./Europe). Remember, that there is no "bell" that rings and starts trading off around the world. Your dealer (including IBFX) might offer wider spreads on Sunday because not as many banks are trading, or because those banks themselves are offering only wider spreads.Your dealer might not open for trading on Sunday afternoon until the banks that they trade with (to pass on your trades, or offset risk) are providing enough liquidity.For these reasons, there is quite a bit of variation in when retail dealers open for trading on Sunday, and what the spreads look like when they do open. IBFX opens for trading on Sunday at 6:00 PM Eastern US Time.

Question Three:Why are spreads going wacky? Why are swap rates changing?
Recently there has been a massive amount of market volatility. Banks who trade with your dealer have most likely been setting new policies on trades held overnight, on swap rates paid, on order execution, spreads, and much else. You are seeing the consequences of these changes: volatile movement, huge gaps on Sunday evenings at times, and spreads widening from time to time.

Question Four: Is there a central exchange in forex?
No. This is why there can be differences in pricing between two separate retail forex dealers.

Question Five: Are swap rates universal?
No. Each retail forex dealer can set whatever swap rates they choose, and can base those rates on what the banks are charging/paying -- or on the cycles of the moon, or any other reason. Note: "swap rates" refer to the charges assessed to, or the payments made to, your account, when you hold overnight positions in a currency pair. We can do deeper into this issue in a future newsletter.

Question Six: What would you look for in a forex dealer?
First, I'd say I want to do business with a transparent company, that publicly and openly talks about their business model and has a stable balance sheet (plenty of excess net capital, which is capital over and above what regulators require the firm to have, for those of you who read the CTFC reports).Second, I'd want to do business with a dealer that does not trade against me.Third, I'd want to work with a company that has the very best customer service. I work for IBFX, so it's natural that I am going to tell you that there is no better customer service in the business of retail forex. But here's my challenge to you: Call at least three other companies and talk with the people in customer service. Ask to be transferred around, and speak to a few different people. Do business with the company that treats you best. There are firms that will claim they have 500 agents, or that they have a dedicated customer service representative just for you. What really matters is that you never wait to talk with someone, and more importantly, that when you do talk with someone, you're talking with an experienced professional who puts you at ease and takes as much time as necessary to help you in your journey to being a currency trader.I call this the "IBFX Customer Service Challenge," and I'll leave the rest up to you.

ABOUT ROB BOOKER
IBFX CHIEF MARKET STRATEGIST
Rob Booker, known for his charismatic style and sound technical trading strategies, possesses an ideal mixture of Wall Street know-how and Main Street background. He has assisted countless numbers of fellow traders develop their own trading systems and manage the mental, psychological and discipline issues related to trading in the financial markets.
Prior to joining IBFX in the Summer of 2008 as Chief Market Strategist, he was the founder and host of TraderRadio.net, a daily radio program for traders heard by home-based investors around the world. He is a regular contributor to many financial industry publications, and has made regular appearances on national television and radio.
Rob is the author of Adventures of a Currency Trader, Currency Trader's Handbook and Strategy:10.

Personally, I have read one of Rob's book: Adventures of a Currency Trader and liked it very much. Would recommend forex beginners to read it too.

FX trading results for October

Results for the month of October is not impressive. The account is down by about 13% compared to previous month. Reasons are as follows:
i) Insufficient backtesting of some strategies
ii) Overtrading
iii) Close out a position with loss of over 100+ USD$ due to inappropriate application of Pipforia EA.
Nevertheless, the account is still up by 47% compared to my initial captial. I was very upset and demoralized when I reviewed my trading results last Friday. But I have since picked myself up and raring to go again after reading "Adventures of a currency trader" by Rob Booker over the weekend. I can draw parallels of me and Harry Banes in the book. Told myself to persevere and be more hardworking in studying the markets. Afterall, I am still a newbie with only 4 months of trading experience. And to be a successful trader, at least 3 years of consistent trading results is necessary.