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Beware of Backtests
If you've been looking into trading futures, commodities, forex or stocks, you've probably been exposed to "backtest" results. These results purportedly show what a trading method would have done in the past, had you followed it. They are one reason why the US government requires the phrase "past...
Castles Made Of Sand
Jimi Hendrix was an extraordinary guitarist, but most people focused just on his guitar playing abilities, not realizing his lyrics were often quite poetic. In one song, he sings "Castles made of sand, fall in the sea, eventually." This is a great phrase to think about while trading. There are t...
Scaling The Heights With Forex
I was recently asked by a new trader about Scale Trading in the Forex Market. I hope this inexperienced trader and I are talking about the same idea when we mention "scale trading." In case you do not know what scale trading is (or at least how I define it), a link to an article I wrote about it...
That's A Sneaky Trick
I saw an advertisement for a futures trading system the other day, and I'd thought I would discuss it here. Now normally, I trade only futures, forex and commodity systems I create, since I know exactly what goes in them, how they were tested, etc. That's not to say there aren't other vendors an...
Hot For Trading
At one of the websites I frequent, someone recently asked "Isn't trading exciting?" As someone who has been trading for 18 years, I thought I'd share my perspective. Good trading in stocks, futures, forex or options, whether it is long term or short, should be pretty boring. If it is "exciting,"...
The 90 Percent Club
If you've been around investment circles long enough, you have undoubtedly seen ads for stock, futures, forex or commodity systems, services or newsletters claiming a 90% or greater winning trade rate. This, of course, makes the approach very enticing. I mean, seriously, how could you lose money...
Focus On The Negative
With almost every decision in life, people tend to focus on the positive, and minimize the negative. Think about buying a house - what entices you first? Usually, it is curb appeal, and if your first impression is favorable, you'll tend to minimize negatives, like maybe the amount of rehab the ...
Glitter Like Gold
I smiled a little bit the other day, when I saw the grumpy old men in the corner coffee shop excitedly engaged in a conversation. I couldn't hear all of what they were saying, but based on the animated pointing and gesturing at what looked like a paper price chart of Gold (they still make those?...
The Two Percent Rule
In the classic book "Market Wizards," one of the famous traders interviews recommends that traders risk no more than 2% of their capital on any one trade. Any amount higher, the expert trader proclaims, is akin to being a cowboy gunslinger. Although everyone's circumstances are different, in ge...
The Hidden Danger Lurking in High Leverage Trading
I'm sure you've seen ads from forex or futures brokers touting the incredible leverage you can have trading. While it is true that leverage is great when a trade moves in your favor, it can wipe out your account in an instant when it goes against you. For example, many forex brokers offer 100:1...
When Lightning Strikes
In today's electronic age of trading, everything seems very easy. Just log on, point and click, and viola! - a trade is opened or closed. Pretty simple. But, lurking under that simplicity is a huge hidden danger - what do you do when things go wrong? Technology and infrastructure sometimes fai...
Walk 2 Steps Forward, 1 Step Back
If you've been around trading for a while, you probably have seen system vendors tout their performance results via "backtest" or "walkforward test" reports. Unfortunately, most people think these two types of tests are the same, or virtually the same. Nothing could be further from the truth. S...
Scales Can Be Hazardous To Your Financial Health
I have been trading futures for about 18 years, and many of the early years were consumed with searching for the "perfect" trading system. One of the approaches I found that seemed to make sense was scale trading. It is an interesting concept that "wins" most of the time, but is really only ap...
Sharp As A Razor
Would you believe that a 14th century priest, and his concepts, can help make you a better trader? Well, English logician and Franciscan friar William of Ockham really can make you a better trader. Ockham developed the concept commonly referred to as Occam's Razor. Simply put, this principle fa...
Overriding or Modifying Trading System Signals
I recently received an e-mail from a relatively new trader. He was trading a system he purchased, based on its alleged stellar performance. "I've been using this system for a few weeks, and sometimes I just KNOW the signals it gives will be wrong. What do you think if I'd take the signals, and c...
