How I became obscenely rich

I am learning about differentiation (calculus) to work out derivatives at the moment. The maths I am learning is all about various different things in the economy, business and personal finance.

I previously wrote about compound interest in the post:  First order linear recurrence and compound interest from the book ‘Mathematics for Economics and Finance’ by Martin Anthony and Norman Biggs.

I am not learning about derivatives, the number e and logarithms.

I find it quite amazing how the trick of differentiation works where if you have 2x² and find the derivative it becomes 4x. By multiplying the first number by the power and then reducing the power by one results in the derivative.

What are the chances of that? We live in a strange world.

The derivative is the change in the function at a given point. You might imagine the different between two points on a curve. The average rate of change of the curve is the gradient of a straight line between the two points. As the two points get closer together the gradient becomes nearer the rate of change at a single point. Calculus allows us to work out what the rate of change is at that single point.

Reference:

Wikipedia: Calculus (in particular look at the heading Differential calculus)

Not a bad little trading system. I have been using it for (apparently) one month. I am quite happy with it but the practice account only lasts for a month unless you have a proper account with them.

So, I am still looking for a practice account, preferably with spread betting, for the FOREX where I can place trades on live data but with ‘virtual’ money.

Anyone got any ideas?

I set up a set of related trades as detailed in my previous post. The trade did a false break out of the triangle on the sell side through the support. This closed my trade on its stop with a minor loss. The breakout was significantly large to trigger my sell trade, but has since re-entered the bound area but not yet hit the stop for this second trade.

The  trade has gone against me twice, but because I have set up my stops properly, the losses will be very small.

I am considering adding another trade to buy as the trade travels further within the bound range with a limit about 75% up into the triangle. However, I will probably leave this one to see where it goes.

For some time I have been deliberating about the next course of action. The last post relating to this was written on April 5th entitled ‘Exposing a larger surface area to increase opportunities‘.

I have managed to secure a basic I.T. contract working in the client’s office that allows me to pay the bills. This contract is a junior position and hence does not require me to be responsible other than to do the work at hand. The hours are 8am until 4pm which allows me to get back to me office before the working day ends. The money suits the position and wont get me rich but it does provide me a ’status quo’ on the cash flow situation enabled me not to slide into debt.

Now that outgoings are covered. I am focusing on winning business and building the company by following up on prospects that did not come to fruition due to the recession. I have noticed that since April the number of inquiries and opportunities have risen and I expect my company will have enough business for me to work full time on it very soon.

I am working on a proposal for a very large company at the moment and if that works out, we will be back in business.

I have been trading using a demo or practice account (see previous post). My trades are winning and losing and I have been bouncing around my start capitol so far. So no where near making a living from trading.

I am learning a lot about economics at the moment in particular about supply and demand and the maths behind the market. I can already see this shaping the way I think about the business world and changing the way I make decisions. I’ll write about this in a separate  post.

So all in all, I have covered the downside, working on the upside and making sure I am exploring opportunities and learning.

Life is good.

The chart for USD / CAD pair has made quite a nice ascending triangle on the day chart. (See image above).

I have entered a trade at the bottom of the triangle going Long to catch any rebound to the top of the range.

I have set a stop just below the support at the bottom of the triangle and a limit just below the top of the resistance at the top of the range.

I have also entered an entry order at a distance of the ATR below the range SHORT to catch any breakouts going in that direction and also an entry order going LONG at the ATR distance above the bound range.

Both entry orders have stops at the range points in case it is a false breakout.

So in most cases, I should be in for a winner, unless I get a false breakout SHORT and a false breakout LONG.

This is a multi day trading strategy and I expect this trade(s) to last for several weeks.

I have across and nice application that is free and allows you to trade FOREX major currency pairs in real time in a practice environment. It is from FXCM.

You can download their software for free without having to sign up giving your life story and all your important documents. The trading and charting environment is good as well.

You can trade right from the charts at the point where you click on the chart which I like too.

Does anyone know of a practice FOREX spread betting account that you dont have to send off your passport etc to?

The url is http://www.fxcm.co.uk

It is not spread betting, but the principle is the same with long and short capabilities in amounts in multiples of 10k lots.

I started with £5K virtual money on Monday and it’s now Thursday and I am up using the strategies I know from trading stocks and from the book ‘FOREX, patterns and probabilities‘ by Ed Ponsi.

My account is now £117 up which is just over 2% in four days.

The book is quite good and I would recommend it for anyone who is starting out trading in FOREX and needs a refreshing or wants to learn the standard strategies for technical analysis as they relate to FOREX.

I am reading and working through the book ‘Mathematics for Economics and Finance’ at the moment by Martin Anthony and Norman Biggs.

I am learning the mathematics that is detailed in the trading course ‘Certificate in Quantitive Finance’ to prepare myself both for working in finance and building my trading platform.

At the moment I have just learnt about First order linear recurrence equations and how this relates to working out capital gained on compound interest in an account with a constant percentage rate.

I have always worked this out before in Excel with arduous calculations for each year, now I have the maths to do it for any year in one calculation. It is quite a buzz to see the power of mathematics at work in real life.

Why didn’t they make it this interesting at school!

Standard First order linear recurrence  for compound interest can be expressed in maths as:

y_{t =} ay_t-1 + b

where y is the capital at year t, a is (1 + r) where r is the interest rate as a decimal, and b is zero.

This gives

y_{t =} (1 + r)^ty₀

or Capital after t years = (1 + r) to the power of t multiplied by the initial capital.

If the equation is reversed, then we can see how much we need in the bank to achieve a target t years in the future.

y₀  = y_t / (1 + r)^t

or

capital needed is the desired target amount divided by (1 + the interest rate) to the power of the number of years.

Easy as pie!

I was thinking about opportunities and how they arise in the bath last night and just like Archimedes in a similar situation over 2000 years ago, had a Eureka moment.

Opportunities are always there. It is a matter of seeing them. So how to see more opportunity. This was the question playing on my mind.

I deal a lot with writing secure web applications (when work is around!) and the key thing about security is to reduce the amount of what is a termed as ’surface area’. This is the amount of interfaces, or aspects of the program available for people to look at and potentially attack. By reducing the surface area, you are reducing the points vulnerable to attack.

The exact opposite is required when looking for opportunity. One must open up your ’surface area’ or entrepreneurial activities to ‘catch’ opportunities as they arise. This is akin to expanding one’s awareness.

I have reviewed my ’surface area’ in terms of points at which aspects of my life are open to making money. These are points such as running a business or trading. There are also ideas I have to make money, such as a video commerce idea and affiliate selling online. All of these concepts or actual activities are areas where I am open mentally to making money.

By taking all of the ideas and putting a very small amount of effort in to increase their potential in the market place, making people aware of them, I am increasing my surface area and potential for spotting opportunity.

I am now working out a plan to sew the seeds of some of these ideas and see if any opportunities come back.

As you know, if you have been reading my posts, I am embarking on a journey to write my own trading system. I am focusing more on FOREX at the moment and I am looking for somewhere I can find back data for FOREX currency pairs, preferably every minute of data or thereabouts for the last 6 months.

Does anyone know where I might find this?

I imagine it will be a big download, but that is not a problem.

Any help much appreciated.