Trading is not Rocket Science

Expert: Robert Firestone, Analyst & CTA at Alaron

Who is Robert Firestone?
Robert is a broker with Alaron Trading. As a broker he has spent the last four years working with individual traders to improve their trading skills and strategies. Currently he teaches several classes a week for commoditytradingschool.com & sister site fxtradingschool.com covering topics from the basics to technical analysis and system trading.

Session Material:

In the last 10 weeks I have spent 3 of my weekends at trader expositions. I have been to so many of these things in my career I have lost count. But it never fails to amaze me how much people are willing to pay for the promise of magic beans. One gentleman I spoke with had spent over $60,000 on classes. When asked how his trading was going the response was not inspiring.

I am going to let you in on the secret about trading. There is no secret to trading, no magic indicator or settings for an indicator. Trading is about momentum!

If you are long the Euro the only way to make money on the trade is for the price to go up. Logically if the market is falling the momentum is down. With that in mind does it make sense to buy a falling market? Not really. The basic idea works regardless of what time frame you are trading on or what market you are in. Momentum is the king of the market failing to trade with momentum is trading to fail.

Session Transcript

FXstreet Moderator (Dec 12, 2006 8:53:25 AM)
Good morning, good afternoon, and good evening to all of you joining us today from different parts of the world.

FXstreet Moderator (Dec 12, 2006 8:53:44 AM)
Today’s session will start in 10 minutes. Welcome!

FXstreet Moderator (Dec 12, 2006 9:02:59 AM)
Welcome to the Session. Today I am delighted to welcome our guest speakervRobert Firestone, Analyst & CTA at Alaron.

Robert Firestone - Alaron (Dec 12, 2006 9:03:32 AM)
Thank you for having me today.

Robert Firestone - Alaron (Dec 12, 2006 9:04:58 AM)
As you can see by reading the notes on the side the most important factor in trading is momentum.

jigar (Dec 12, 2006 9:06:22 AM)
what period do you use for momentum?

Robert Firestone - Alaron (Dec 12, 2006 9:06:23 AM)
Also I have a problem with people who tell traders that trading is some magic or complicated process.

Robert Firestone - Alaron (Dec 12, 2006 9:06:58 AM)
Momentum is something that can be used on any time frame.

Robert Firestone - Alaron (Dec 12, 2006 9:07:41 AM)
It doesn't matter if you are trading on a daily chart or a 15 minute chart the same thing is true.

Robert Firestone - Alaron (Dec 12, 2006 9:07:57 AM)
TO MAKE MONEY THE MARKET NEEDS TO MOVE IN YOUR DIRECTION!!!

Robert Firestone - Alaron (Dec 12, 2006 9:09:12 AM)
I am not a big fan of limit order for that exact reason. A limit order has you buying a market that is falling or selling a rising market.

Robert Firestone - Alaron (Dec 12, 2006 9:09:35 AM)
How do we measure momentum?

Robert Firestone - Alaron (Dec 12, 2006 9:10:04 AM)
Like most things in trading there are a lot of different ways.

Robert Firestone - Alaron (Dec 12, 2006 9:11:00 AM)
Crosses of moving averages is a popular way.

johne59 (Dec 12, 2006 9:11:38 AM)
What's the secret to knowing the direction?

Robert Firestone - Alaron (Dec 12, 2006 9:11:43 AM)
Donchian channels, a lot of mechanical systems use these for the foundation of their code.

Robert Firestone - Alaron (Dec 12, 2006 9:12:52 AM)
There is no secret

Robert Firestone - Alaron (Dec 12, 2006 9:13:14 AM)
The techniques for identifying momentum are fairly simple.

jigar (Dec 12, 2006 9:13:59 AM)
what moving average period do you use

Robert Firestone - Alaron (Dec 12, 2006 9:14:01 AM)
The most basic are looking for the classic consolidation patterns on a chart.

Robert Firestone - Alaron (Dec 12, 2006 9:14:44 AM)
Flags, triangles, narrow channels, and trading the breakouts of these patterns.

Robert Firestone - Alaron (Dec 12, 2006 9:15:33 AM)
There is no one right moving average combination.

Robert Firestone - Alaron (Dec 12, 2006 9:15:52 AM)
There are a lot of popular combinations.

Robert Firestone - Alaron (Dec 12, 2006 9:16:31 AM)
On a 15 minute chart I like the 5, 14, 63.

Robert Firestone - Alaron (Dec 12, 2006 9:17:30 AM)
For swing traders on a daily chart 3 & 7 simple and 4 & 10 are talked up.

Robert Firestone - Alaron (Dec 12, 2006 9:18:20 AM)
Long term trend followers use long term averages often in the neighborhood of 40 & 200 on the daily chart.

Ranger (Dec 12, 2006 9:19:55 AM)
It is the setting for different time frames that seem to get people I talk to. i.e. donchian channel, momentum, etc.

Robert Firestone - Alaron (Dec 12, 2006 9:20:00 AM)
The single thing that links all the averages is they seek to identify the momentum of the time framt they seek to profit on.

Robert Firestone - Alaron (Dec 12, 2006 9:21:45 AM)
Excellent Ranger. The hurdle most traders run into is looking to be handed the magic setting.

Robert Firestone - Alaron (Dec 12, 2006 9:23:01 AM)
Each indicator or method will have a range of settings that should produce fairly equal results.

Robert Firestone - Alaron (Dec 12, 2006 9:24:19 AM)
If a 5, 15, & 64 works the similar settings of 4, 16 & 62 should have simillar results.

Robert Firestone - Alaron (Dec 12, 2006 9:25:24 AM)
If the settings around the settings you are using dont work you may have a problem when the market shifts slightly.

Robert Firestone - Alaron (Dec 12, 2006 9:26:09 AM)
There are numerious indicators that are used to identify momentum.

Robert Firestone - Alaron (Dec 12, 2006 9:27:44 AM)
The DMI or as some prefer to call it the ADX shows momentum strenght and direction. By its self not good for trade signals but an excellent confirmation indicator.

Robert Firestone - Alaron (Dec 12, 2006 9:29:16 AM)
The MOM indicator is simple. It really just measures the current price against the price from X# of bars ago and tells you if you are higher or lower. If the MOM is above the 0 line the momentum is up. Below 0 momentum is down.

Robert Firestone - Alaron (Dec 12, 2006 9:31:11 AM)
MACD and RSI can be used to find momentum as well.

Ranger (Dec 12, 2006 9:32:17 AM)
Yes and thanks, but people often ask me the momentum or direction and often do not consider the answer is relative to the time frame, i.e. ten minute, hour, day, week, and etc.

Robert Firestone - Alaron (Dec 12, 2006 9:32:50 AM)
Any time we use indicators we need to remember the process. Price is most important and the indicator confirms. If the price is falling and the indicator is telling you long the price always wins that argument.

Robert Firestone - Alaron (Dec 12, 2006 9:33:21 AM)
Again Ranger you are in the right place at the right time.

Robert Firestone - Alaron (Dec 12, 2006 9:33:46 AM)
Momentum is only relevent to the time frame you are trading on.

Robert Firestone - Alaron (Dec 12, 2006 9:35:07 AM)
The trend on the daily or weekly chart may be up strong. But you are daytrading on the 5 minute chart the momentum may be down.

tienfx1 (Dec 12, 2006 9:35:57 AM)
What numbers you like on MACD and RSI?

Robert Firestone - Alaron (Dec 12, 2006 9:36:07 AM)
If you are day trading you should have an idea of the momentum on a longer term basis.

Robert Firestone - Alaron (Dec 12, 2006 9:37:09 AM)
I personally dont use the MACD on a regular basis. But my boss is a fan of 8 & 20.

Robert Firestone - Alaron (Dec 12, 2006 9:37:28 AM)
RSI the stock 14.

Guest_miguel (Dec 12, 2006 9:37:40 AM)
so momentum is the key to trading the forex market

Robert Firestone - Alaron (Dec 12, 2006 9:37:41 AM)
The MACD is a daily setting.

johne59 (Dec 12, 2006 9:37:54 AM)
And what does news do for the momentum?

Robert Firestone - Alaron (Dec 12, 2006 9:38:12 AM)
Yes momentum is the key to all trading. FOREX, Stocks, commodities

Robert Firestone - Alaron (Dec 12, 2006 9:38:40 AM)
I beleive that for the average trader pure technical trading is the best way to go.

Robert Firestone - Alaron (Dec 12, 2006 9:39:27 AM)
You are competing with trading companies that spend more on coffee for their office than you spend all year.

Robert Firestone - Alaron (Dec 12, 2006 9:39:59 AM)
They have a distinct advantage when it comes to getting the news before you and act before you ever see it.

Robert Firestone - Alaron (Dec 12, 2006 9:41:11 AM)
Over the weekend I saw Jim Rogers speak. He knows more about the market fundamentals than everyone else in the room combined and he is retired.

Ranger (Dec 12, 2006 9:41:37 AM)
Then what is the best way to level the playing field between us and those companies?

Robert Firestone - Alaron (Dec 12, 2006 9:41:55 AM)
As small individual traders we need to figure out where we can compete on equal footing and that is price.

Robert Firestone - Alaron (Dec 12, 2006 9:43:21 AM)
The current price is bigger than any individual or trading firm. It represents the opinion of all traders in the market. And everyone gets it at the same time.

Robert Firestone - Alaron (Dec 12, 2006 9:45:26 AM)
I can argue all day long about what the fed will do and what the markets reaction will be. The one thing I can not argue is the Euro is trading at 1.3248 right now.

Robert Firestone - Alaron (Dec 12, 2006 9:47:12 AM)
I can have my opinion all day long about why the euro should be higher or lower but the price right now it the fair value accorging to the market right now.

libra02 (Dec 12, 2006 9:48:03 AM)
off the subject question .if you do currency options wont that be cheaper than paying spreads with the same results???

Robert Firestone - Alaron (Dec 12, 2006 9:48:53 AM)
I prefer the straight play. My experience trading options is very complicated.

Robert Firestone - Alaron (Dec 12, 2006 9:49:50 AM)
Options are priced to lose. Various studies haev been done and the results all seem the same 75-85% expire worthless.

splsm (Dec 12, 2006 9:50:51 AM)
In your opinion, can we assess momentum by the reaction of the market to certain news? For instance, a moment ago an ECB official said that there's no target to Euro FX rate. Nothing new there... But, the Euro rallied almost 30 pips on that. So, there has to be a Euro positive momentum there... RighT?

Robert Firestone - Alaron (Dec 12, 2006 9:52:02 AM)
Right the euro is moving up the momentum is positive.

Robert Firestone - Alaron (Dec 12, 2006 9:53:55 AM)
When there is strong momentum on one side the news no matter how insignificant it may seem at the time, often triggers fresh trading in the direction of the trend.

Robert Firestone - Alaron (Dec 12, 2006 9:55:29 AM)
We have just a few minures left here if you have any questions get them in quickly, I try to get through all the questions during the session.

Jen (Dec 12, 2006 9:57:16 AM)
would you say that a good way to trade momentum is to wait for momentum to be moving in the same direction on multiple time frames?

Robert Firestone - Alaron (Dec 12, 2006 9:59:21 AM)
That is a strategy many traders use look for the momentum to be up on the day, hour and a 15 minute chart. I fing the primary trade with that method is a daily position trade with the shorter time to refine the entry.

ali (Dec 12, 2006 10:01:14 AM)
Hi Robert, we konw right now the fair value, what will be it's problable implication on next action, how do I try to figure out?

Robert Firestone - Alaron (Dec 12, 2006 10:01:32 AM)
My last word. If there is one point I can not stress enough trading is not doing the extraordinary sometimes it is doing the ordinary all the time.

Robert Firestone - Alaron (Dec 12, 2006 10:01:40 AM)
OK Ali

Robert Firestone - Alaron (Dec 12, 2006 10:02:09 AM)
If the momentum is up that means there is demand for the product.

Robert Firestone - Alaron (Dec 12, 2006 10:02:32 AM)
As demand increases momentum increases.

Robert Firestone - Alaron (Dec 12, 2006 10:03:01 AM)
If there is strong enough the market should continue to move higher.

Robert Firestone - Alaron (Dec 12, 2006 10:03:52 AM)
We are out of time today.

FXstreet Moderator (Dec 12, 2006 10:04:54 AM)
That’s all we have time for Today .Thank you very much for that Robert!

Robert Firestone - Alaron (Dec 12, 2006 10:05:04 AM)
If you have any further questions, contact me directly rfirestone@alaron.com.

FXstreet Moderator (Dec 12, 2006 10:05:42 AM)
Thank you all for your participation.

FXstreet Moderator (Dec 12, 2006 10:05:46 AM)
See you soon!

Robert Firestone - Alaron (Dec 12, 2006 10:06:13 AM)
Thank you all for being here today. I will be back in January for the next section of Trading is not rocket science.

FXstreet Moderator (Dec 12, 2006 10:07:19 AM)
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FXstreet Moderator (Dec 12, 2006 10:07:32 AM)
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