Forex Follies &Lessons LearnedJohn Mason, MBAFXStreet MeetUp, Toronto June 4, 2014

My Trading Journey – John Mason

• Every trader and trading story is unique

• Results are individual - not repeatable, nor guaranteed.

• Based on factors such as:

Trading Techniques Portfolio Size Risk Tolerance How You Execute Your Money Mindset

My Trading Journey – John MasonPast performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, ad seek advice from an independent financial advisor if you have any doubts.

The information, including commentary and trade ideas, provided in this presentation should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. The speaker and author is merely providing this material for your general information. The information and opinions expressed do no take into account any particular individual’s investment objectives, financial situation or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite.

John P. Mason, OANDA, FX Street will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in the above sources. John P. Mason, OANDA and FX street do no render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought

My Trading Journey – cont’d

• Strategy for 25+ years: “buy & hope”

• Major losses in 2008

• Took control of my investments

• A-Ha Moments: FOREX trading offered potential ofBig Gains…. and Big Losses

• Scary … but interesting

How I Trade

Markets: Mini-contracts on 12 major FOREX pairs

Portfolio: Started FOREX trading with $18,500 cash (plus other investments worth $26,500)Total Investment Portfolio = $45,000

Technique: Swing/Trend trader. Seek entry & exit signalsa) Break-outs: based on 3-day

highs/lows b) Inside Days: When daily trading range is within trading range of previous day

TechniquesBreak-outs: Trends based on 3-bar highs/lows

TechniqueInside Days: When daily trading range is within the

trading range of previous day

Trading Summary – One Folly I Avoided

Keep written records of ALL your trades

Summaries (as below) and each individual trade

Portfolio Change – Nov. 2011 to May 2014

Sep 2011 Apr 2012 Oct 2012 May 2013 Nov 2013 Jun 2014 Dec 2014$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000 Portfolio Value (Start of month)

Started Nov. 2011 with $18,566

May 2014 with $28,683

Over 31 monthsgained 54% or $10,117

Results – 497 FOREX Trades (Mini-Contracts)

Overall: 60% Winners 385 winning trades (Longs: 65% winners; Shorts 55% winners)

Avg P/L: About $20 per trade

Best Trades: +$885 Lg AUD/JPY Oct 11-25, 2012

+$611 Sh GBP/JPY May 24 - Jun 1, 2012

Worst Trades: -$742 Sh USD/CHF Jan 12-16, 2012

-$406 Sh AUD/USD Dec 7 – 14, 2011

FOREX Folly # 1: Not Managing Your Risk

What’s Your Risk?

• “Fixed Fractional” Technique:

• Risk per trade is a fixed percent of your portfolio

• Keeps you in the game.

• I set 1% max risk on any FOREX trade based on my total portfolio’s value

• Portfolio = $45,000; Max risk = $450

FOREX Folly # 1: Not Managing Your Risk

My Worst Trade: -$742 Sh USD/CHF Jan 12-16, 2012

I failed to follow my 1% rule. Actual risk was 1.6%

Why? That’s coming up in Folly #2

So what was my lesson?.....

FOREX Folly # 1: Not Managing Your Risk

Lesson Learned:Calculate risk/trade BEFORE entering EVERY trade

Based on prices for entry and protective stop

Long entries: I buy on stop (above current market) &

I attach a sell on stop

Short entries: I sell on stop (below current market) &

I attach a buy on stop

FOREX Folly #2: Trading on Emotion

• Why didn’t I manage my risk?

• Emotion & Greed

• Previous month P/L = +$2,000 , almost 11%

• Failed to follow the rules

• Took a trade with three contracts – “Sure thing”

• Trade went against my position. Lost 3 X $247

FOREX Folly #2: Trading on Emotion

Lessons Learned:• Have a plan and strategy. Put it in writing.

• Follow your rules. Learn your trading platform

• Take the emotion OUT of your trading

• Make trading a SYSTEM, execute it consistently

• Review BEFORE trading & check your monthly results

FOREX Folly #2: Trading on Emotion

How I “Systemized” my FOREX Trading – Just the numbers

FOREX Folly #3: Not Listening to the Market

• The Market is always right.

• “You can be right, or you can be rich”

• There are always signals

• Know what to look for

• Be ready to act

• Be ready to change your mind

FOREX Folly #3: Not Listening to the Market

Lesson Learned: How To ListenExample: Trading Non-Farm Payroll May 1-2, 2014

• Used Inside Day on USD/JPY as set-up

• Ready to enter either long or short

• Identified entries, stops and profit targets

• Placed orders in advance

• Prepared for the market to move in either direction

FOREX Folly #3: Lesson Learned: Listening to the Market

Inside Day Set-Up May 1 1 day before Non-Farm Payroll: What’s the market saying?

FOREX Folly #3: Lesson Learned: Listening to the Market

Step 1. Inside Day Set-Up May 1 1 day before Non-Farm Payroll: Ready to go Long Or Short with 2 contracts each.

USD/JPY Daily Candlesticks(detail from previous slide)

If long, enter at May 1 high 102.4 with 102.1 stop

If short, enter at May 1 low 102.1 with 102.4 stop

FOREX Folly #3: Lesson Learned: Listening to the Market

Step 2. Inside Day Set-Up May 1 1 day before Non-Farm Payroll: Set 2 profit targets each for Long Or Short

USD/JPY Daily Candlesticks(detail from previous slide)

Long profit targets:at 25% = 103.00

at 15% = 102.76

Short profit targets: at 15% = 101.74 at 25% = 101.50

FOREX Folly #3: Lesson Learned: Listening to the Market

102.1 Long protective stop

102.4 Long entry

Takeaways – To Fix the Follies

FOREX Folly # 1: Not Managing Your Risk• Calculate risk/trade BEFORE entering EVERY trade• Use entry prices and protective stops

FOREX Folly #2: Trading on Emotion• Have a written plan and strategy• Follow your rules • Take emotion OUT of your trading• Make trading a SYSTEM• Check BEFORE trading, review results monthly

Takeaways – To Fix the Follies

FOREX Folly #3: Not Listening to the Market• Learn how to read the market

• Get familiar with trading techniques that fit conditions

• Be ready for fast action

• It’s okay to get in and get out quick, or not…

• If in doubt, get out!

Thank You! Questions & Comments

Forex Follies &Lessons LearnedJohn Mason, MBAFXStreet MeetUp, Toronto June 4, 2014