Rob's blog.

Probabilistic Thinking

I have struggled for some time on whether to start talking about probabilities as they relate to foreign exchange trading -- at least with people other than those whom I train.

The reason behind my reluctance is that this is a huge area of study, and once you start going down this road, it can start to engulf you to the point of absolute confusion. So I'm providing this link that I believe simplifies the topic and provides an adequate (although not simplistic) introduction to the concept.

One other note: although probabilistic thinking should play a vital role in your trading, it doesn't have to. In other words -- you're more likely than not to be successful at trading if you engage in probabilistic thinking. No pun intended there, by the way. Get your base of knowledge about fundamental and technical indicators. Then get a bit of training in probabilities.

Here's the link:

Princeton University's Probabilistic Thinking Page

The first article on the list, named "Subjective Probability" is the one I'm referring to.

EURO-HAIKU: Proof that I'm nuts.

I wrote this at midnight EST and sent it to the Prime Minister of Japan and his Minister of Finance, Sadakazu Tanagaki. It's basically my idea of trying to shame them into letting the currency float. I think nations et. al. that prop up currencies are just pansies.

Ok. So here's the proof that I'm out of my mind:

Euro moves up now
Dollar falling as hard rain
Yen: still as fresh snow.

Only a matter of time

It was only a matter of time before some of the slimeballs in the forex business got caught. As you already know, 48 players in the forex business were arrested this week as part of a 18-month long sting operation by the FBI. What can we learn about this?

First: you can only scam the average joe for so long
This was bound to happen eventually. The forex business is a den of thieves who routinely steal from each other and from unsuspecting investors. If you've ever received a phone call from a boiler room broker, you know what I'm talking about. Some of you out there have been unfortunate enough to invest with some of these brokers.

But, as with an industry that is maturing (more on that below), the time comes when too many average joes have been scammed, too many complaints fly in, and the FBI starts moving on it.

Second: regulation is coming
And it's a good thing that it is. Soon, anyone who manages forex funds for investors will be required to have a CTA or a CPO. And a Series 3 license. This is a good thing for all of us. No matter what the libertarians and ditto-heads tell you, a little bit of regulation is a good thing. The forex market, for over 30 years, has been the market of choice for terrorists and mobsters to launder money. New, inevitable regulations should be welcomed.

Third: get ready for the forex market to expand
The forex market is at the tipping point. which means that we're about to see a massive expansion in online trading. There are currently about 100,000 of us out there, and within a year (and you can quote me on this) there will be over 200,000. FXCM alone will have 100,000 clients next year. This means that there will be industry consolidation. Standardized customer service. This is mostly good for all of us, as the less legitimate brokers disappear and the good guys vault to the top. This also means that those of you who are trading now will have a vastly improved market in a year.

Oh, Crap. I wrote another ebook.

Yep. I wrote another one. This time it's all about what you should do when you lose money in forex trading -- and believe me, I'm an authority on the subject. Before I became good enough to trade for a living, I blew at least one pip for every human on planet earth.

You can get a free chapter of the ebook by clicking here.

What did you do after losing money?

I remember the first time I lost a significant amount of money in trading. For a while, I thought I might just stop altogether. Or trade 2 times the lots from the last trade and make it all up right away. Or take a walk. Or shoot my neighbor's dog, which had the habit of barking incessantly at exactly the times I was making trades.

I know this has never happened to you, but, in the off-chance that it has --

What did you do when you lost a bunch of money? What was your first reaction? Next month's ebook discusses why you lose money, and what to do about it. But I'm interested in your thoughts. Write me and tell me what you did when you lost money. Email me here.

Forex at the tipping point

FXCM is now claiming 20,000 clients, and if that's true, then hold on to your hats because forex spot trading has just about reached the tipping point. Remember the explosion in online stock trading from 1996 to 2000? The forex market is, in its life cycle, at the year 1996.

That means greater liquidity for everyone. It also means that over the next year or so, that we can trade larger amounts at guaranteed stops and limits. It also means (unfortunately) that governments around the world -- not the least of which the U.S. -- may start heavily regulating (and suffocating) the growth.