1. FX

The importance of verification work before trading forex

Pablo Picasso tasted oil painting of trader with serious face in t-shirt at his desk chirt displayed computer on, at home

“Portrate of trader with serious face at home”
Image extraction: stable diffusion

In FX trading, the process involves clicking the sell/buy button, dragging the stop loss line (and the profit taking line), and then either having the trade automatically settled when it hits the line, or clicking the ‘X’ (settlement button). This is the case when using MT4, but it’s probably pretty much the same no matter what brokerage or platform you use. I think that most day traders who, like me, make discretionary trades a few times a week or month, are manually operating in this way every time. When it comes down to it, the actual operation ends with 2 clicks (plus 1-2 drags).

So, FX trading is important for the preparation before taking action, and when you include major matters such as determining your own strategy and tactics, the time and method of preparation varies greatly depending on the individual. In any case, since you’ll often need to do “verification” work, here are some tools I use for verification as a memorandum, and I’ll add more useful tools as I find them in the future.

RCC (Review Candle Chart)

RCC (Review Candle Chart for MT4) cost about 30 USD, I think. RCC is software that allows you to practice trading (buy/sell simulation). It allows you to go back in past charts and trade, while the right side is invisible. In other words, you can view past charts as if they were current. Since you can also fast-forward, it’s useful for practicing, including entry timing, after verification. Time-saving.
By the way, they were also selling an optional indicator that displays Bollinger Bands on RCC, so I bought it. I guess the people who develop this kind of stuff are probably traders themselves, thinking it would be nice to have something like this. There are some amazing people out there.

By the way, you can easily backtest methods on a site called TradingView (coding knowledge required). It’s the perfect tool for getting a rough idea before you start verifying. I’ll add notes here when I try it.

Indicators

I use MT4 as a platform, and the only indicator I display on the chart is the Bollinger Bands. By the way, the chart is a candlestick chart.

I also have "SynchroChart_Line" and "RemainingTime", but these are just auxiliary aids.
SynchroChart_Line is used to synchronize the lines drawn on the chart with other time frame charts. For example, a horizontal line inserted in a 1h chart will automatically be inserted in other time frames like 4h charts.
RemainingTime displays the remaining time until one candlestick chart is confirmed. This shows the time until the next candlestick starts.

There may be more advanced versions of both sync and time display out there, but these free ones are enough for me.
Many people seem to use the Ichimoku Kinko Hyo and MACD along with the Bollinger Bands, but in the end, they don’t directly provide a basis for entry, and more than anything, I don’t like it when the chart gets cluttered, so I don’t use them. Ichimoku is especially terrible.

In the end, all indicators have a lagging span, as if they’re justifying past price movements, or in other words, they’re like playing rock-paper-scissors after the fact, and predicting the future is impossible, that’s my understanding. Well, nothing can really predict the future.

If by any chance you want to rely on an indicator for entry or exit, you’d have to do verification work first, but I think it’s quicker to directly verify chart patterns, so I hardly touch them. I use Bollinger Bands especially for viewing the selling/buying area and range of price changes, but lately I’ve been thinking maybe I don’t need them.

By the way, I follow John Bollinger, the inventor of the Bollinger Bands, on Twitter. It’s interesting to see him tweeting confidently without a shred of doubt about the usefulness of the Bollinger Bands. He seems to perform in Japan occasionally.

Since I hardly use them, here are some order methods like IFD and OCO that I can’t remember as a memorandum:

IFD (If Done)
An order method that allows you to place limit and stop orders at the same time. Only for new orders.
For example, if $1 = ¥110 now, and you buy when the rate reaches ¥115, and close (take profit) when it reaches ¥120. It’s a limit order that can also place a take-profit point.

OCO (One Cancel Other)
A reservation order method that issues two orders together. For new and closing orders.
For example, if $1 = ¥110 now, you can buy if the rate reaches ¥115, and sell if it drops to ¥105. If you have a position, you can close at ¥115 and cut losses at ¥105. Once one of the orders is executed, the other is cancelled.

IFO (IF Done OCO) / IFDOCO (IF Done OCO)
This is referred to as either “IFO” or “IFDOCO” depending on the company. After the IFD order is executed first, the OCO order is automatically triggered. It’s a combination of IFD and OCO.
For example, if $1 = ¥110 now, and you buy when the rate reaches ¥115, you can decide to close (take profit) at ¥120 or cut losses at ¥113. You can set one limit and two methods of closing.

Upon writing this, I realize that I’m unlikely to use such leave orders in the future. Even if I do, it would only be a stop order.

Verification

Perhaps for the so-called genius market traders who respond to price movements like a cell, there may be no need for verification work. This might be true for people like Jim Rogers, Warren Buffet, and George Soros, who are known as the three major investors in the world, or BNF, CIS, and Testa in Japan, and I also personally think that Masayoshi Son of SoftBank Group is an exceptional investor.

Indeed, there are many parts of speculative trading that you have to learn while actually investing money in practice… or rather, I think this constitutes a significant portion of what is called trading skills. However, this doesn’t mean that you can skip the verification process if you’re an ordinary person, especially as a place to return when a slump (drawdown) starts.

The loop of verifying a trading method → (recently) RCC → practice → verification… is the so-called verification work. There is no other way to improve (prepare for) trading skills.

Demo trade, small capital trade, or RCC

There are many experts who argue the necessity of demo trades, but personally, I think it’s better to actually start trading with super small capital. With an amount of money like 1,000 currency units that won’t hurt too much even if you lose. Or you should at least do a rehearsal after verification with RCC or something like that.

And it’s not just something you do at the beginning and then finish. When you actually try it and it doesn’t feel right, you should go back to rehearsal as many times as needed. For example, when you return from a holiday where you’ve been away from the market for several days.

Of course, if you can win without doing all this trouble, you don’t need to practice. It’s a repetition, but it’s all about winning. The way to win is the right way. No matter how good a theory or logic seems, it’s garbage if you can’t win in the long run. Well, whether it’s verification or practice, you won’t understand its importance unless you experience it and feel that it leads to profits.

Trading Style, Mental State

It might be hard to convey to others, but I’ll make a few mental notes as a reminder to myself. So I can look back and return when needed.

・Assuming when you lose
The first thing I do when I sit down in front of my computer for trading, before I start checking the charts, is to assume what happens when I lose. I repeat what to do when the price movement goes against my environmental recognition. Anything other than the patterns with verification results is unknown.
Even if I feel like this trading attitude has become a lifestyle habit, laxity can attack me unexpectedly one day, like the devil played by Al Pacino in the final scene of the movie “Diabolos”.

・Self-management = self-understanding
Observe and understand as carefully as possible where you tend to want to enter physiologically, what situations make you want to cut losses or take profits, what mistakes you tend to make, what situations make your blood rush to your head, and ultimately what kind of profit you should (or can) aim for as a trader. Adapt the trading rules as much as possible to suit that.

・Distance between the market and myself
In Forex, there is absolutely no need to worry about “opportunity cost”. Whether it’s a crash due to fundamental factors, a rapid rise, wild fluctuations, or data release times, what I need to do is always the same. The exchange rate will still move next week and the week after. I need to reconfirm my trading style that suits me. I’m not a scalper who sticks to the desk and makes dozens or hundreds of small trades a day. In other words, I always check my distance from the market. I should never get hot and glued to the chart. It’s not my range. Similarly, I don’t make trades that risk a loss exceeding 5%. The cause of losing sense of distance lies there.

Position sizing and cutting losses are the most effective defensive measures.

・Follow the facts
I leave my predictions or emotions that make me want to predict, and wait for the environment to allow me to enter. I invest the appropriate amount of money based on the facts that appear on the chart and wait for the results.

FX Broker

Finally, I will list the FX broker I use. When I personally look at other people’s trading related blogs, I always wonder about it.
The FX broker I use is mainly Thinkforex. I’ve been using it for over 10 years because of its NDD, trust protection, and zero cut system (NBP: Negative Balance Protection). Its headquarters are in Australia.

From around 2015, residents in Japan were unable to open accounts, but as of June 2023, it seems they can do so again.

By the way, in Japan, it seems that it’s illegal for brokers to provide zero cut to users. Zero cut is a service where “if a loss cut is not in time and the account balance becomes negative, the broker takes on the loss and resets the account balance to zero (source: Overseas FXWIKI)”, but I never understood why this is not allowed in Japan no matter how many explanations I read. Without this system, users may be burdened with debt in case of emergency. It’s strange that such a customer-friendly service that would erase the debt is not allowed.
This means that even if you open an account with Thinkforex in Japan, the zero cut system would not apply, I suppose.

Well, perhaps it would be best not to trade without setting a stop-loss, but I think there’s a significant difference in terms of mental health between having one and not. Especially when you witness a ‘flash crash’ like the Swiss Franc shock.

Furthermore, it seems that in Japan, leverage is regulated to a maximum of 25 times. It seems like a regulation related to the above, but I don’t really understand why they would differentiate themselves from other countries to such an extent.

But well, in reality, it doesn’t really matter which company you use at the beginning. It’s okay to research brokers and the like after you’re confident that you can make money with Forex. It’s a waste of time to investigate the additional factors of something that might not continue.

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