Never completely trust a robot?

The other day I came across an article with the above title. After reading it I thought that, beside the catchy title, what was really the appeal of the question?

I think it harks back to the deep set fear we have, that automation may be our ultimate doom - a la I-Robot or the Terminator.
I think it needs to be said loud and clear - "You are your Forex account's biggest enemy."
Compared to what the average greedy Forex trader is capable of in just "one adrenaline - caffeine induced trading rush" - even the most grave programming error of an expert advisor is a walk in the park.
I give you a real example of just last week: We had a client who was happy with the overall trading performance of one of the robots we developed, but had a couple of loss entries that he didn't understand. He wanted some clarification and sent us his account history. I don't know if you can imagine our bewilderment when we realized that this fellow had been trading at all the wrong hours. The robot's schedule was 180ª reversed - since he had not synched his account settings with his trading charts. Yet he had been writing up some beautiful profitable weeks!  We set him straight and the problem was solved with two clicks of a mouse, but - talk about trading without supervision.

I have said it before and will say it again - human emotions and human error caused by fear and greed are the number 1 enemy of you account.
If you have robot-trusting issues - this is what I recommend:

1. Do your research: buy a great forex robot from people who care and offer training and support. Make sure it has automatic money management controls and is specifically designed for the currencies you wish to trade.
2. Install your robot - check in once a day or once every other day to make sure it works fine - and let them do what they do best!

If you want more involvement read about our no trade days - but don't try to outguess the market it is a sure kiss of death for your accounts!
Other than that - trust your robots - they are not emotionally compromised...

The Best Scalping Strategies - Part 1 - EUR/CHF

Even the best scalping strategies will only work with a few currency pairs. Many currency pairs will never yield - try as hard as you may - to scalping - ever.

What is scalping really: according to Investopedia Forex Scalping is: "A Forex Trading Strategy that attempts to make many profits on small price changes. The main goal is to buy/sell a currency pair at the bid/ask price and then quickly sell it a few pips higher/lower for a small profit. Many small profits can easily compound into large gains if a strict exit strategy is used."

Of course scalping is much easier and safer with a currency pair that is range bound. A currency pair that is extremely volatile will cause too many wild fluctuations and cause too many stop losses.

The EUR/CHF Cross is one the best currencies for a forex scalping strategy.

Why does the EUR/CHF lend itself to scalping so well?

1. It is a tightly range bound currency pair.
2. The EUR/CHF is a currency cross - since it does not have the USD as part of its pairing. The main global currency fluctuations are in regards to the US Dollar, the world's "Reserve" currency.
3. Since both currencies share the same economic region they are strongly related and keep a tight equilibrium. It is really hard to think that the Swiss economy would prosper when the rest of Europe goes through an economic downturn and vice versa. This tight knit relationship leads to extra stability in this pair - something we really appreciate in a forex scalping strategy.
4. Interest rates are not very different between Switzerland and the Euro zone, also contributing to a tight range year in, year out. Even though the days of wild and uninhibited carry trade may be over, a big difference in interest rates in a currency pair creates an overall trend and enlarges daily, monthly and yearly ranges. The GBP/JPY, for example, is a wild ride on most trading days, while the EUR/CHF, in comparison, is almost sleep inducing.
5. The one thing that WILL move the Swiss Franc is geopolitical turmoil. More than any other currency the Swiss Franc is knows as a safe haven - or the gold currency. Most investors when fearing wild market swings will run to the Swiss Franc for cover. This currency was backed by gold to 40% at one time and between the Swiss neutrality and general status as a beacon of fiscal prudence this is where people will turn at times of instability and fear.

The EUR/CHF has been a reliable profit maker with our forex expert advisor scalping programs. The losses are very rare, the gains are steady and reliable, as maybe only the Swiss can produce?

This should be a permanent part of anybody's portfolio of automated trading strategies .

Improper Money Management - the reason most forex traders fail!

Forex Money Management is at the heart of any successful investment enterprise. If you ask any Forex expert about what makes a successful Forex Strategy and "Money Management" does not come up in his first three points  I would say that person is probably not an expert and his advise may not be worth listening to.
Money Management is what separates the professional trading approach from the amateur and not coincidentally is the very reason 90% of first time traders wipe out their first trading account.

Why is Money Management so detrimental? It means you have to abandon hunches at all times, be aware what your stop losses would do to your account, you HAVE to take losses and cannot afford to extend stop losses to avoid them and lots more somewhat unpleasant but responsible trading behaviors. Money Management is your constant reality check and most people would rather day dream while day trading.

Why is money management so important for long term trading success?


Amount of Equity                         Amount of Return Necessary to Restore
       Lost

         25%                                               33%
         50%                                             100%
         75%                                             400%
         90%                                            1,000%

So, that means that a trader would have to have a 100% return on his money just to recoup a 50% wipe out of his account.
Very few active traders are able to pull this off - I am sure that these traders use wise money management in the first place!

Stop hoping for the big one - the one trade that will make you rich! It doesn't exist - and while trying you will expose your capital to enormous losses that will be ever harder to overcome.

Start thinking in terms of steady growth with predetermined risk. Put your account on autopilot with good days that are realistic and bad days that are not catastrophic.

They only way to accomplish this is Forex automated trading with automatic money management.

Forex as a Retirement Investment?

Forex is usually not the first thing that comes to mind when the topic "Retirement Planning" comes up. Why? Because Forex still has the stigma of "no-holds gambling away - crazy trading" with risk that is uncontrollable and a chance to lose all the money at any moment. But is this perception deserved and even true?

I think we are still in what will be considered "Forex infancy" in years to come. Let's not forget that stock investing was considered risky and not a safe choice by those promoting real estate as the only safe investment choice just a few decades ago.
Trading always is only as good as the strategy behind it. There will always be traders who trade "by the seat of their pants" - in Forex right now they are still the majority - but soon they will be weeded out by the natural selection of trading - they will simply run out of funds.

When you have a sound Forex trading strategy and a system to implement it - preferably an automated Forex trading system to rule out human error and emotion - profits will follow - in all trading setups - Forex just being another investment venue. The advantage that Forex has over other investments is leverage - you can with little money  control large capital - that leads to faster paced growth but does not mean we have to deal with larger risk.

How to control risk in Forex:

1. You leave trading to a Forex automated system - no mistakes - 100% execution of your Forex trading strategy
2. You use a robot with automated money management and you trade with low risk. Your account will grow slowly and steadily - and on its own
3. You apply common sense - you avoid insanely risky days  - no-trade days - you read the news and observe the market behavior - ideally your robot uses volatlity filters to rule out much of the insanity on its own.

The Modern Day CEO?

One of the most endearing and important qualities that uniquely define us as humans is the way we pass on what we’ve learned to subsequent generations. Fortunately, that doesn’t just happen in families. It happens in business, too.

And while one person’s experience may be the next person’s nonsense, there is the occasional rare gem to be cherished and passed on. Fred Wilson, a Venture Capitalist who’s been around a while, has decided to share some advice he received almost 25 years ago from another Venture Capitalist. Who knew Venture Capitalists could be so ancestral?

Anyway, the advice is the answer to the question “What exactly does a CEO do?”

As a sign of the tough economic times and other recent events, the jaded and sarcastic among us might respond with a satirical point of view:

What the public sees in the 21^st Century CEO does (a satirical POV)

Has an inappropriate relationship with a marketing contractor, gets caught, gets fired, walks away with $35 million and a sweet job at his friend’s company. (Mark Hurd former CEO at HP)

Presides over a spectacular environmental disaster, promises to clean it up, whines about the toll it’s taking on him, tells congress he wasn’t involved. (Tony Hayward, former CEO BP)

Fuel the subprime mortgage bubble, hedge against it, get bailed out, pay out record bonuses, and document all of it in emails. (Loyd Blakenfein, CEO Goldman Sachs)

I can go on and on with this trip down memory lane, but we’ve probably heard enough CEO bashing to last us a good long while.

Anyway, according to Wilson, here’s what a CEO does (the Venture Capitalist POV)

Sets the overall vision and strategy of the company and communicates it to all stakeholders.

Recruits, hires, and retains the very best talent for the company.

Makes sure there is always enough cash in the bank.

According to the elder Venture Capitalist, CEO’s should delegate everything else to the management team. Wilson, on the other hand, who uses these metrics to evaluate CEOs, says that, while good CEOs often do more, he doesn’t believe you can be a great CEO unless you do these three things well.

Now, I’ve worked for and with a lot of CEOs over the past 30 years or so. Some of them weren’t terribly good at their jobs. A few were. And while I think Wilson hit the nail on the head, I think it needs to be qualified and expanded on a bit:

What a CEO should do (a personal perspective)

o   Sets the overall vision and strategy of the company and communicates it to all stakeholders. Doesn’t pull it out of his you-know-what, as many do, but derives a unique value proposition from an ongoing strategic process.

o   Makes sure there is always enough cash in the bank. Sets, oversees, and drives the operating and financial model for the company, including profit, expense, and growth targets.

o   Recruits, hires, and retains the very best talent for the company. Ensures the management team is motivated, aligned, and held accountable to achieve the company’s strategic and operating goals.

If a CEO doesn’t do those three things well, he does not have the capacity of a good CEO. I will reserve “great” for CEOs that actually accomplish great things, which would encompass a greater good to society, employees, and the act of passing forward a healthy business to the next generation. 

The Art of Willful Ignorance and the Modern CEO

When I talk with CEOs and business owners, I like to find out what keeps them awake at night, what intractable issues or opportunities disturb their sense of confidence. Of course, each one has industry-specific or company-specific challenges and they are fascinating.

But there’s one problem common to each one of them. They all know it. Only a brave few will talk about it openly: Ignorance.

It doesn’t matter whether the company is large or small, old or young, high tech or blue-collar manufacturing. The reality is that no leader is fully informed of what is happening on his or her watch.

Ignorance Isn’t Bliss

Of course in theory, this should not happen. The chain of command should ensure that information reaches the top. Daily reports should flag critical issues. Balance sheets should indicate significant trends. And they all do - up to a point. The problem is that none of them works quite well enough.

That’s why BP can run unsafe plants and still be taken by surprise when they blow up.

It is why music labels could be blind-sided by the rise of digital downloads.

It is why soft drink companies were surprised by the popularity of vitamin drinks.

It’s why Lehman Brothers and Enron and Citibank and Merrill Lynch had no idea actually how much money they had.

This is why companies are so anxious about what Wikileaks will publish next.

It Can Happen to You

The most tempting thing in the world is to look at that string of business disasters and argue: it was they, not me. It couldn’t happen here. They were just bad leaders, a few bad apples. But the minute you say you don’t have this problem is the minute you know you do.

The problem is willful ignorance: the human propensity to ignore the obvious. It is not just a business problem, of course. We do it in our private lives when we leave those credit card bills unopened or take on a mortgage we can’t afford or insist that tanning salons really won’t cause us any harm.

There are numerous social, structural, organizational and neurological reasons for willful ignorance and I will be blogging about them over the next few weeks. But in the meantime I’d like to hear from you: in your company or department or industry, where are your blind spots?

Care to comment?  You can post on my blog: 

http://businessmanagementcounselingservices.blogspot.com/

Or, write me at stevehomola@gmail.com

I am always interested in what you have to say.

RISK/REWARD System in Business

Risk and reward are related factors in the business world. Any company that chooses to enter the marketplace faces risks, whether financial or operational. Therefore, reward is the benefit achieved when companies mitigate their risk and earns income from their operations.

Systemic Risk

Systemic risk is the collapse of an entire market or industry in the marketplace when one company fails. Businesses face this risk when selling products in a saturated marketplace with large competitors.

Systematic risk is faced by businesses that do not diversify their products or services. Companies can avoid this risk by offering several products in the marketplace and creating multiple revenue streams.

Measuring Risk

Businesses measure risk by comparing their expected rate of return to the normal risk-free rate of return in the marketplace. Formulas like the Capital Asset Pricing Model (CAPM) help businesses determine the amount of reasonable risk by comparing rates of return to the amount of risk in investments.

Mitigating Risk

The first step in earning rewards in business is to mitigate the risk involved in business decisions. Diversifying investment strategies can mitigate risk. Choosing some safe investments or products along with some high risk/reward investments or products will maintain a diversified business strategy.

Achieving Rewards

Businesses achieve rewards when they choose investments that have the highest rewards and the lowest amount of risk. Some investments will have higher risks than others, so businesses will require higher returns on these investments. All business decisions carry risk, so carefully measuring the risk versus the reward is essential when reviewing business opportunities.

We face business decisions every moment of the day. Some business decisions are more important than others.

.                 Your business is at a fork in the road. Which way do you go?

.                 Should I invest more money into the company?

.                 How much of my money should I invest?

.                 Maybe I should sell my business?

.                 Is my business worth saving?

.                 Should I downsize or try to grow?

Unless you are clairvoyant, there’s no way to know for sure whether your business decisions will be the right ones. In the end, we should all have to do the best with the information we have at the time. The business decisions you make based on limited information may not be the business decisions I would make, but the results and consequences from those business decisions will certainly be yours and yours alone. 

Awhile back, I remember a colleague of mine making a statement about my opting to stay the course and continue to conduct business as usual when everyone knew that the environment in which we were now operating was very different and more importantly, unfamiliar.  His statement to me was,” Are you basing your business decisions on facts or feelings?”  When push came to shove, I was basing my business decisions more on feelings rather than facts. 

Since that time, I have found one decision-making tool that I’ve learned to use over the years that helps me organize my thoughts and separate facts from feelings.  I’ve adopted it and applied it to many business scenarios. It’s the risk-reward calculation. In other areas of business, it’s also called a cost-benefit analysis. In layman’s terms, it spells out the probabilities of success and failures based on certain actions.

Here are 5 basic questions you can ask yourself before you make business decisions. The first order of business is to simply stop and take the time to go through this exercise.

5 Essential Questions to Ask Before Making Important Business Decisions

1.     What Are the Potential Rewards? What could you gain by performing action X? It could be a dollar amount, or something less tangible like peace of mind or the respect of your co-workers. In some cases it could be both.

2.     What Value Do You Place on the Potential Rewards?  This question, in some respects, is more important than the first. If you don’t personally value the rewards presented by action X, what’s the point? Even if you are not a numbers person, you should place a numerical weight on each reward factor and come up with a mathematical model for whether or not you should move forward with a particular decision.  In the case of rewards/gains, it becomes essential and critical to calculate the potential dollar amounts from your business decisions.

3.     What Are the Potential Risks?  What risks are inherent in action X?  What could go wrong? What is the likelihood that the risks you’ve outlined could materialize? What is the dollar amount related to each decision risk?

4.     What Value Do You Place on the Potential Risks?  Every risk has to have a potential dollar gain and loss associated with it. If you could potentially lose $50,000 on an investment, you might be fine with that. But if that $50,000 represents all of your capital, you might see things differently. If you’ve just lost you’re your largest client, you might not want to risk any of your capital. Considering best practices and historical proof prior to your discovery for change should be leveraged and weighed in your decision making process as well.

5.     What If you’re Wrong?  Unconsidered variables and unknowns can throw a wrench into your risk-reward calculations. What if the rewards you anticipate don’t materialize?

What if there are risks out there for which you have not accounted? By definition, you cannot enter the proverbial Black Swan into your calculations. For those who aren’t familiar with the term, the reference is to Nassim Taleb’s bestselling book about the highly improbable. (Tangential Mini-Rant: Many have said that the recent (ongoing?) financial crisis was a black swan event.)

The key here is to outline some contingency plans. How will you react if your business decisions don’t pan out? Will you sell or hang on in hopes of a recovery? How will you react if that recovery never happens? How will you react if you are correct and your business decisions yield 20% more than expected? Would you continue to implement calculated risk-reward decision making for the remainder of the business life cycle?  The key is to have a plan in place before these things happen.

These guidelines won’t guarantee a 100% winning decision. Nothing can do that. But at least you’ll know that you’ve based your business decisions on facts not feelings and numbers not notions to increase your chances for success.

In my 15 years of working closely with business owners, I have found those who have sought information from outside of their own reaped the benefits of risk-reward calculations to steer their business towards their goals.

How are you going outside of your own knowledge and experience to calculate your risk-rewards for business decisions?

How to recognize the Best FOREX EA

First off I know there are many people out there who say that a "best forex robot" is like a contradiction in terms. Their opinion is that all Forex Robots are garbage. They are of course entitled to that opinon but I would question their wisdom, being a long term trader myself, if they truly believe there is safety in manual trading.
A Forex EA or Forex Robot - the terms are interchangeable - is nothing more than a software program based on a Forex trading strategy. Now, of course the program will only be as good as the strategy behind it, and there are a lot of questionable EAs out there.

How can you tell a great forex robot from a bad one? Here are a couple of pointers:

1. Is the software creator confident enough to offer you a money back guarantee? - a profit guarantee of course is even better.
   Whereas it is a general good business practice to offer a money back guarantee - in Forex trading this is particularly important.
   You want to make sure the company stands behind their robots and will not only offer you great customer service but also help you in set-up and can knowledgeably answer any questions you have. Of course if the company offers a profit guarantee - that really would be awesome.
2. The EA is customized to no more than two or three currencies.
   Each forex currency pair has its own distinct personalities. That has to be accounted for to create a good Forex strategy. I dare you to show me an EA that can trade the GBP/JPY and the EUR/CHF with the same presets! It is simply impossible! Doesn't exist. So, you can group some currencies as scalping currencies together and trade them in a similar fashion - but if the robot promises to work on ALL currencies in all market conditions run for the hills.
3. The software company offers different robots for different strategies - and they have created more than one robot.
   This goes hand in hand with the previous point. Each type of currency and each market - London, New York, Asia - requires careful tweaking in strategy. A do-all approach will lead only to losses. Your EA creator no doubt has to have different solutions for different markets. Also, be aware of EA creators who seem to offer too many robots. If they have found a strategy that works, why would they go on creating so many different robots? You are looking for a software company that created a handful of EAs and took years to develop them with real-time testing on live accounts and back testing over several years as well.
4. Your EA developer can answer questions - and offers customer support.
   In case you need assistance you need to be able to get in touch with your EA developer. Especially if you are a FOREX beginner - questions will come up and should be answered with real trading knowledge.  You want "real" traders with real experience behind the development of your product - not just some software geeks, who churned out a quasi system they have never traded on a live account.
5. Price is not a indication of quality.
   Unfortunately that is very true in the Forex world. Just because a Forex Robot is expensive is does NOT mean that it will trade better. I have seen some real hack-jobs in my time. Be very careful if the software company tells you outright that there are no returns. Like I said in my first point: a real company stands behind their product.  I for one believe it is important to offer a robot at a decent price and leave enough money in your pocket so that you can actually set up an account and trade well.
6. Be careful with exaggerated promises of "1000% returns", "Doubles your money in one month" "Never a losing trade"and other stupid quotes.
    A real Forex trader - who should be the person behind developing your Forex robot and therefore your Forex strategy - should know that the growth of your account is relatively slow and steady. I said "relatively" slow because compared to other forms of investment it is actually at breakneck speed - but it should not involve risking too much of your margin and put you at the constant danger of wiping out your entire account. Let's get real here - 1000% profit IS ridiculous and CANNOT be guaranteed - however 200% over a year is more than any other investment can offer you and sounds a lot more reasonable and therefore interesting. Look for robots that offer a believable return and do not promise things that seem too good to be true - because they usually ARE!

Happy Trading!

Stanley

Man Versus Machine: The Advantages of Automatic Trading

As a long time trader I was skeptical regarding the idea of Automatic Trading when it was first implemented in a large scale in the 90ies. After all did it not in some way threaten the very existence of my profession?
What a long way we have come!
Automatic Trading is not only here to stay, but it has really revolutionized the way we trade.
The advantages of trading robots are of course obvious.

• No Emotions
• Fast execution - no hesitations
• No "variations" on the strategy
• flexibility

Whereas the first three points are clear to all who have ever witnessed a "Forex Robot" or "Expert Advisor" trade a live account the last point seems some what arbitrary.

All decent Forex automatic trading systems employ filters to choose entries and exits - they are after all what differentiates one system from the other.

In a sophisticated robot you can control these filters and adjust them to what is going on this year, month or the last 24 hours - with as much involvement as you see fit.

The trader of today spends most of his day tweaking and expanding strategy - not really having to worry about execution of trades.

We have all become statisticians and been able to develop the most sophisticated strategies yet.

What we gave up was a sort of renegade cowboy feel that came with so much stress it certainly shortened our lives.

I think it was an excellent trade!