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Publish an unlisted version of the forex post
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dguo committed Feb 14, 2023
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8 changes: 7 additions & 1 deletion astro.config.mjs
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Expand Up @@ -18,7 +18,13 @@ export function remarkReadingTime() {

export default defineConfig({
site: "https://www.dannyguo.com",
integrations: [mdx(), sitemap()],
integrations: [
mdx(),
sitemap({
filter: (page) =>
!page.includes("blog/forex-trading-for-fun-and-luckily-profit"),
}),
],
markdown: {
remarkPlugins: [remarkReadingTime],
rehypePlugins: [
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120 changes: 68 additions & 52 deletions src/pages/blog/forex-trading-for-fun-and-luckily-profit.md
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Expand Up @@ -2,8 +2,8 @@
layout: ../../layouts/BlogPostLayout.astro
categories:
- programming
date: "2022-05-29"
draft: true
date: "2023-02-13"
unlisted: true
tags:
- forex
title: Forex Trading for Fun and Luckily Profit
Expand Down Expand Up @@ -49,26 +49,32 @@ which includes [George Soros](https://en.wikipedia.org/wiki/George_Soros) making
$1 billion in a day by [betting against the Bank of
England](https://fortunly.com/articles/george-soros-and-the-bank-of-england/).

Consider the experience of going from the United States to Europe (perhaps back
in non-COVID times). Let's say you go to a bank ahead of time to change your
U.S. [dollars](https://en.wikipedia.org/wiki/United_States_dollar) into
Consider the experience of going from the United States to Europe. Let's say you
go to a bank ahead of time to change your U.S.
[dollars](https://en.wikipedia.org/wiki/United_States_dollar) into
[euros](https://en.wikipedia.org/wiki/Euro). You make the exchange at a certain
rate, and then you go to Europe. When you get back, you change your remaining
rate, and then you go on your trip. When you get back, you change your remaining
euros back into dollars. Depending on how the exchange rate has fluctuated while
you were gone, you could have a profit or loss on the dollars that you didn't
you were gone, you could have a profit or a loss on the money that you didn't
spend. This is a small-scale example of [foreign exchange
risk](https://en.wikipedia.org/wiki/Foreign_exchange_risk).

You probably don't care about that risk, but think about the case of a large
company that operates internationally. The company might make deals that involve
receiving payments at a later date. If the company doesn't take any steps to
mitigate its foreign exchange risk, it is effectively gambling on exchange
rates. Instead, the company can
You might not care about that risk, but think about a large company that
operates internationally. The company might make deals that involve receiving
payments at a later date. If the company doesn't take any steps to mitigate its
foreign exchange risk, it is effectively gambling on exchange rates. Instead,
the company can pay to
[hedge](https://en.wikipedia.org/wiki/Foreign_exchange_hedge) its risk using
derivatives, removing the chance of making a loss or a profit because of
exchange rate changes.
derivatives, removing the chance of a loss. As well as the chance of a profit!

I wanted to do the opposite. I *wanted* to take on risk in the hopes of making a
The company can set things up in such a way that if the original deal loses
money because of exchange rate changes, the derivative will make a corresponding
amount of money. And vice versa. If the original deal makes money, the
derivative would lose money.

The company is paying for *certainty*.

I wanted to do the opposite. I wanted to take on risk in the hopes of making a
profit. The first step was to pick a broker.

## Picking a Broker
Expand All @@ -93,8 +99,10 @@ when you are forced to put in more money or close your position. Leverage makes
it easier to both make and lose money.

500:1 scared me, so I didn't anticipate wanting to use that much leverage. Some
of the brokers also seemed sketchy to me. I ended up picking
[Oanda](https://www.oanda.com/us-en/trading/), which let me leverage up to 50:1.
of the brokers also seemed sketchy to me. It's hard to explain how, but their
websites and customer support representatives didn't give me a good feeling. I
ended up picking [Oanda](https://www.oanda.com/us-en/trading/), which let me
leverage up to 50:1.

## Manual Trading

Expand All @@ -105,7 +113,7 @@ Oanda's desktop application. Here's an old screenshot:

### Currencies

You can see from the screenshot what currencies I could trade through Oanda:
You can see what currencies I could trade through Oanda:

* Australian dollar (AUD)
* Canadian dollar (CAD)
Expand Down Expand Up @@ -145,7 +153,7 @@ cables](https://en.wikipedia.org/wiki/Transatlantic_communications_cable) that
spanned the Atlantic Ocean to enable faster communication between the United
States and England. Later, EUR/USD became known as the "fiber" as a nod to the
[fiber-optic cables](https://en.wikipedia.org/wiki/Fiber-optic_cable) that are
used now for the same purpose.
used for the same purpose.

### Spread

Expand All @@ -159,10 +167,9 @@ always higher than the sell price.
The difference is known as the [bid-ask
spread](https://www.investopedia.com/terms/b/bid-askspread.asp). It means that
if you simultaneously buy a pair and sell it, you would lose money. The broker
would effectively keep the difference, and that is the primary way that the
broker makes money. So to make a profit yourself, it's not enough for the
currency pair to change in your favor. It has to change enough for you to beat
the spread.
would effectively keep the difference, and that's how the broker can make
money. So to make a profit yourself, it's not enough for the currency pair to
change in your favor. It has to change enough for you to beat the spread.

The spread is usually shown as a number of pips ([percentage in
point](https://www.investopedia.com/terms/p/pip.asp)). A pip is the smallest
Expand All @@ -180,10 +187,9 @@ volume. You can see that EUR/USD, which is the most traded pair, had a spread of
Spreads also change throughout the day. As a whole, the forex market is [open 24
hours a
day](https://www.investopedia.com/ask/answers/how-forex-market-trade-24-hours-day/).
Trading volume is correlated with when markets are open. So the busiest time is
when the European and U.S. markets are both open, and that's when spreads are
the tightest. But because of time zones, there is always at least one market
open.
Trading volume is correlated with when markets are open. The busiest time is
when the European and U.S. markets are simultaneously open, and that's when
spreads are tightest. But there is always at least one market open.

## Strategy

Expand All @@ -199,23 +205,24 @@ continued to move against me, I'd make a third, even larger trade. And so on.

In most cases, it only took me a few trades to make a profit in one direction.
The risk was that if a rate kept moving against me, I would eventually run out
of money. At that point, all my money would be in one position that could be
wiped out with a margin call.
of money to put in. At that point, all my money would be in one position that
could be wiped out with a margin call.

So I was able to consistently make small profits, but there was always the risk
of a catastrophic loss that would wipe out all those small gains. I later
learned that this is called a [Martingale
strategy](https://en.wikipedia.org/wiki/Martingale_(betting_system)). In
retrospect, I had no reason to believe that my strategy was any good. I had no
special insight into forex rate changes or technological advantage. My strategy
technological advantage or special insight into forex rate changes. My strategy
was just gambling.

At one point, I did look into using [economic
Eventually, I did look into using [economic
indicator](https://www.investopedia.com/terms/e/economic_indicator.asp) releases
as a basis for trades. I even did some crude
[backtesting](https://www.investopedia.com/terms/b/backtesting.asp) with historical
indicators and forex rates. But I never put such a strategy into action. The
Martingale was my primary method during my brief stint as a forex trader.
[backtesting](https://www.investopedia.com/terms/b/backtesting.asp) with
historical indicators and forex rates. But I never put such a strategy into
action. The Martingale was my primary method during my brief stint as a forex
trader.

## Automated Trading

Expand All @@ -227,9 +234,9 @@ which I knew would make automation easy.
I bought a book named [Expert Advisor Programming: Creating Automated Trading
Systems in MQL for MetaTrader
4](https://www.amazon.com/Expert-Advisor-Programming-Automated-MetaTrader/dp/0982645902?crid=3QDACH7CXL46R&keywords=Expert+Advisor+Programming%3A+Creating+Automated+Trading+Systems+in+MQL+for+MetaTrader+4&qid=1644888838&sprefix=expert+advisor+programming+creating+automated+trading+systems+in+mql+for+metatrader+4%2Caps%2C97&sr=8-1&linkCode=ll1&tag=thdalo00-20&linkId=2c0c6edb764af5bde0421e042ee819e1&language=en_US&ref_=as_li_ss_tl)
to learn how to write "expert advisors" (EAs) in [MetaQuotes Language
4](https://docs.mql4.com/) (MQL4), which has syntax similar to C++, as well as
built-in functions for trading, such as
to learn how to write "expert advisors" (EAs, which are basically trading bots)
in [MetaQuotes Language 4](https://docs.mql4.com/) (MQL4), which has syntax
similar to C++, as well as built-in functions for trading, such as
[OrderSend](https://docs.mql4.com/trading/ordersend) and
[OrderClose](https://docs.mql4.com/trading/orderclose).

Expand Down Expand Up @@ -279,8 +286,9 @@ void PlaceOrder(string pairToTrade, double sizeOfTrade)
I defined a [special start function](https://book.mql4.com/programm/special)
that would be called whenever there was a new tick (a rate update).
The only way that I learned in school to persist data was to use text files, so
that's what I did. I wrote and read CSV files.
The only way that I had learned in school to persist data was to use text files,
so that's what I did. I wrote and read CSV files, which served as a simple
database.
```cpp
int handle = FileOpen(Symbol() + ".csv", FILE_CSV|FILE_READ, ",");
Expand Down Expand Up @@ -346,11 +354,11 @@ bool DoublesEqual(double number1, double number2)
//+------------------------------------------------------------------+
```
Note the useless comment that doesn't tell anything more than the function
Note the useless comment that doesn't tell you anything more than the function
signature.
There's also the unnecessary conditions instead of just returning the boolean
directly.
There are also the unnecessary `if` and `else` conditionals instead of just
returning the boolean directly.
`Averager/Averager.java` has [this
monstrosity](https://github.com/dguo/forex-trading/blob/b90bb61b25b8ce4496d382609ddd6a428a1ffcfc/Averager/Averager.java#L123).
Expand Down Expand Up @@ -423,9 +431,9 @@ for (int aa = 0; aa < width; aa++) {
}
```

In `Forex/Other/Test2/Forex.java`, I
[apparently](https://github.com/dguo/forex-trading/blob/b90bb61b25b8ce4496d382609ddd6a428a1ffcfc/Forex/Other/Test2/Forex.java#L28)
didn't like to have useful error messages.
In `Forex/Other/Test2/Forex.java`, I [also
noticed](https://github.com/dguo/forex-trading/blob/b90bb61b25b8ce4496d382609ddd6a428a1ffcfc/Forex/Other/Test2/Forex.java#L28)
that I was okay with undescriptive error messages.

```java
if(rawData.isEmpty()) System.out.println("wtf");
Expand All @@ -437,14 +445,22 @@ it rip.

## Results

I remember watching the USD/JPY price change dramatically. It later turned out
to be because of the [Tōhoku earthquake and
I don't have great records for my performance, but from what I can find, I
deposited $31,050 in total, and I ended up withdrawing $38,701.99. So that's a
return of 24.6% ($7,651.99) in about half a year.

I experienced huge swings during that time. There were moments where I had
thousands of dollars in [paper
losses](https://www.investopedia.com/terms/p/paperprofitorloss.asp). Other
times, I'd be up thousands of dollars. To some extent, I became desensitized to
it all.
But there was one day that reminded me that these numbers represent something
real. On March 11, 2011, I watched the USD/JPY price change more quickly than I
had ever seen before. I found out that it was
[because](https://files.stlouisfed.org/files/htdocs/publications/review/11/09/303-324Neely.pdf)
of the [Tōhoku earthquake and
tsunami](https://en.wikipedia.org/wiki/2011_T%C5%8Dhoku_earthquake_and_tsunami).
I saw huge swings. To some extent, I became desensitized to it.
I don't have great records for my performance, but it looks like I deposited
$31,050. And I ended up withdrawing $38,701.99.

I was lucky that I ended up making a profit. I certainly could have lost it all
on any given day.

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