Q and A with B&K

Over the past month we’ve had a number of new subscribers with varying degrees of expertise in trading the foreign exchange market join the BKForexAdvisor service so we thought we would take this opportunity to answer some of the more common questions directed to us in the hope that they may provide you with the information you seek.

Q, What is your trading approach?

A. We trade event risk. What does that mean? Every day the global economic calendar carries numerous economic releases and events. Often but not always these events have direct relationship on price of the currency we trade especially if the data surprises the market. It is our job to try to analyze these events and ascertain which ones have the best possibility of a positive or a negative surprise. Are we always right? Not even close. In fact we can be wrong more often than right and we can be wrong in two ways:

1. We can be wrong about the outcome of the data
2. We can be right about the data, but the price does not go our way.

So how do we make money? Because in trading as in life the key to success isn’t how many times you are right or wrong but what you do about it. We are extremely disciplined about cutting out losses short while trying to let our profits run. This is a very tried cliché in trading – but it is a cliché for a very good reason – it is absolutely 100% true. However, although the idea of keeping losses small and profits large may sound simple it is extremely hard to implement which brings us to the next question.

Q. How do you trade?

A. We always trade with two units in every trade. In the retail FX market transaction sizes are uniform. You can trade mini-lots which are comprised of 10,000 units of currency or you can trade standard lots which are comprised of 100,000 units of currency. When we trade we always trade in multiple of two lots. The actual size amount is totally dependent on the risk tolerance and size of the subscriber’s account. We have some subscribers that trade two mini-lots on each trade representing 20,000 notional units of a currency and other subscribers that may trade 20 standard lots per trade representing 2 million notional units of currency.

Why always two units? Because as we said the idea of letting your profits run is a lot easier said than done. When you are in a trade that is making you money and it suddenly moves a few pips against you the temptation to get out is overwhelming. The end result is that most traders take their profits too early. In fact the single biggest reason that most traders lose money is that they let their losses run but cut their profits short. Therefore in order to solve this problem we trade with two unit and two targets. Here is how all of our trading instructions are done. Lets take a look at a recent trade in the Australian Dollar:

BKForexAdvisor.com
News from the Desks of Boris and Kathy
6/5/2007, AUD/USD, Long
Tuesday, June 05, 2007 EMAIL TIME: 7:35:18 PM EST
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Dear btrader@gmail.com,

Long AUDUSD at market 0.8372

(We always enter at market. This is simply a reference price. Your prices may be better or worse depending on what broker you use and when you enter the order. Generally we try to enter during the quiet times in the market and most of the trade fills are one or two pips either way of our entry price. Way too many of you worry about missing the entry by a couple pips instead of focusing on the trade. Entries are the least important par of the trade. Exits are what matters. That having been said if you are consistently coming at 10 pips worse then our entry price, then you should change your broker. You can look on www.fxstreet.com for a listing of all the retail FX brokers out there.)

Stop 0.8350

(Unlike entries STOPS are fixed. While everyone may have different entry price, the stop must be the same. Stops are placed for a reason – usually a key technical point which if violated means that the trade is clearly wrong. That why you should set your stop at the point of where we specify it)

T1 0.8393

(T1 stands for target 1 and it is set close to our entry price. We always want to achieve a realistic profit on the first half of our position and then move to breakeven on the rest of the trade. This is the only way that we can allow our profits to run. By taking some money off the table we alleviate the psychological pressure of minute by minute fluctuations in price because once we make T1 we are trading with the “markets money” and can stay in the trade longer to see if it will work out our way. Additionally we always go to breakeven on the rest of the position because we never let a winner turn into a loser.

T2 0.8448

(T2 stands for target 2 and it is set far away from our entry price. We try to make it 2 or 3 times our risk. So that if we risk 20 points on the trade we try to make 60 points on T2. Although we certainly don’t make T2 on every we trade, if we reach our T2 target just once or twice a week we are able to offset many of the small losses and make good profits. Those of you who run your own business or are in sales know that 80% of all profits comes from 20% of your best customers. The same holds true for trading.)

A couple of other points. If the data does not print to our expectations we will exit the trade instantly without waiting for our stops to be hit. This at times creates several red “nicks” on our record as we sometimes post –10, - 5, -12 in row. However, this is a key to our success because it creates a highly favorable asymmetrical environment for our trade where our losses are tiny and require only one moderate win to put us back in overall profit. So when you evaluate the service you should never do it on a single trade basis but rather follow us for at least a month after we have produced at least 20-25 trades and you have a good sample size to judge us. That’s why we offer you 30 day free trial basis. This brings us to yet another common question.

Q. Why do you trade so often?

We believe that after 48 hours of any point in time the price action in the currency market is essentially random and subject to huge errors in prognosis. Just at it is easier to predict the weather 5 minutes forward rather than 5 days forward, the same holds true for trading. Furthermore, if we traded on a longer time horizon our risk would have to be much larger with stops of a 150 points or more. Since we started trading this model exclusively in the middle of April we’ve generated 395 points of profit against a maximum drawdown of about 110 point. That means for every $4 of profit we’ve only incurred $1 of risk. If we traded longer term and hit three losing trades in a row we would then subject you to a possible 600 points of loss and we feel that would be way too much risk to absorb. As you can see, unlike many advisory services who promise you the world, we trade for real and as reality based traders we are always much more concerned about managing risk since that is the only component of the trade that we can truly control.

Q. I missed the trade alert in my email. Why the f@##$$ did that happen?

A. We hear you. Bottom line is that email is woefully unreliable. We use an industrial size server and even that software occasionally has glitches. That why we have developed a very specific protocol to make sure you can always get our messages. We issue alerts through 4 different channels. This way if one channel fails you can always get the information another way. All our alerts go into:

1. Email
2. SMS – direct to your cell phone (please contact support to sign up if you haven’t yet)
3. The Website! That’s right the moment the alert is printed it is on the front page of the website at www.bkforexadvisor.com. So please check there first!
4. The Chat Room. The chat room is located at http://www.bkforexadvisor.com/members/tradealerts.aspx

Please get a username and password and join us there about an hour ahead of the trade event. We will post there right away

So now that you know about all of our communication methods you should be able to follow our alerts even if email fails.

We hope you found this Q&A useful and we will do more in the future if you like. Next week Monday is quiet but look for our Trade Plan starting Tuesday as we get back into action

Have a great week-end

B&K