I have already mentioned earlier on this trend the the need to have short, medium and long term trainding plan in place for any trader to be successful. Let me briefly explain my long term trading methods plans here:
Long Term
For my long term trading I use the following combinations:
a) Daily candle in conjunction with RSI. I will monitor the RSI for a clear direction. Once the direction is established I follow the direction. I allow that trade to float around for either 500 pips TP or until the price start to craw around the red horizontal line I have on my RSI chart before closing the trade.
b) Weekly Candle only. For the weekly candle, I open a trade at every month based on the direction of the weekly candly. I will set TP at 250 pips, where the TP is not reach, I wait till Friday to close the trade.
c) Monthly Candle only. For the monthly candle, I will wait 3 three days into a new month and place a trade based on the direction of the candle. I will set the TP at 500 pips, where the TP is not reach, I wait a day before the last trading date of the month to close the trade manually.
For the long term trades, I place only 5 trades in a month in addition to any floationg trade from my daily RSI Chart signal. When I started this method, it was very difficult to avoid the temptation to close trades already in profits or allow losing trades to float for weeks before turning around to profit. I must confess at the initial stage, I close most of these trades whenever I see 100 pips gain/loss in my live account, but with time I develop the discipline to stick to my plans.
The long term trades are usually in addition to my short and medium term trades based on signals from H4 RSI signal, major support and resistance, trend lines and price channels I mentioned in my earlier posts. For the short and medium term trades, I ensure that they are closed a daily basis at most within two days. Depending on my daily targets some of them are even closed within hours or on good days within minutes. I attach a daily chart which shows the trading opportunities for long time between January 2009 - June 2010 and the respect for the RSI 50 line which usually serve as guide as to whether to exit a trade or allow it run.
I will provide the summary of my method in my next post, post some of my results and thereafter come to the present and share my daily, weekly and long term trading plans on this tread for exchange of ideas.
Wednesday, July 28, 2010
Monday, July 26, 2010
The pure technical traders will tell you the most critical element in trading is technical analysis and the fundamental factors are of little significance and their effect subsumed within the charts. They could be right in holding this view and could equally be wrong. To demonstrate the importance of fundamental I will explain three charts.
The first one is EURUSD. The area highlighted in red is what happened 4 weeks before currency fell about 1880 pips following the Greece debt crisis. I remember that for many weeks the prevailing views were that Greece debt crises will send the Euro tumbling. The impeding doom hung in the air for several weeks. When the debt situation was finally confirmed, EURO fell about 1880 to it lowest point of 2005. This is a clear demonstration of how fundamental factors can determine the fate of a currency.
The second chart is gbpjpy and the important point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible impacts of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader.The third chart is gbpusd and the candle to note is the daily candle for 6th and 7th of May 2010. Just like the gbpjpy and the result for UK parliamentary elections which resulted in hung parliament on the currency. The possible effects of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 672 pips in two days. This is a further demonstration what fundamental factors can do.
These above are mere illustrations, there are other fundamental factors. My view is that the big guys could afford to rely solely on either fundamental or technical factors to guide their trading strategies, because they have the deep purse to wriggle out of trouble. However, for the small players with limited fund it is important to understand that two sides to coin. Understanding fundamental and technical factors will greatly improve the success rate of the retail traders in the highly complex forex world.In my next posting I will summarise the critical factors in my trading strategy and post some of my results so far. Thereafter, I will try as much as possible depending on my schedule to provide a weekly trading plan on this thread. The second chart is gbpjpy and the import point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible effect of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader
The second chart is gbpjpy and the import point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible effect of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader
The first one is EURUSD. The area highlighted in red is what happened 4 weeks before currency fell about 1880 pips following the Greece debt crisis. I remember that for many weeks the prevailing views were that Greece debt crises will send the Euro tumbling. The impeding doom hung in the air for several weeks. When the debt situation was finally confirmed, EURO fell about 1880 to it lowest point of 2005. This is a clear demonstration of how fundamental factors can determine the fate of a currency.
The second chart is gbpjpy and the important point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible impacts of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader.The third chart is gbpusd and the candle to note is the daily candle for 6th and 7th of May 2010. Just like the gbpjpy and the result for UK parliamentary elections which resulted in hung parliament on the currency. The possible effects of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 672 pips in two days. This is a further demonstration what fundamental factors can do.
These above are mere illustrations, there are other fundamental factors. My view is that the big guys could afford to rely solely on either fundamental or technical factors to guide their trading strategies, because they have the deep purse to wriggle out of trouble. However, for the small players with limited fund it is important to understand that two sides to coin. Understanding fundamental and technical factors will greatly improve the success rate of the retail traders in the highly complex forex world.In my next posting I will summarise the critical factors in my trading strategy and post some of my results so far. Thereafter, I will try as much as possible depending on my schedule to provide a weekly trading plan on this thread. The second chart is gbpjpy and the import point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible effect of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader
The second chart is gbpjpy and the import point is the daily candle for 6th of May 2010. The day the result for UK parliamentary elections resulted in hung parliament (no clear majority). The possible effect of the election dominated both electronic and print media weeks before the result became known. When the result eventually came out the currency fell by 1716 pips in a single day. This is a further demonstration how fundamental factors can determine the fate of trader
Sunday, July 25, 2010
TRADING GUIDE
GBPJPY is currently on the trendline beginning from 126.73 lowest point for the year so far. If the trendline is broken there is a support around 131.2x. If the trend line and support hold, there is the likelyhood of a reveral to around 136.00.
A break of the lower trendline and 131.2x support will likely precipitate a fall to around 126.xx to complete the 2nd leg of the fall from 145.95. A break of the upper trendline and the strong resistance at 136.16 will clearly indicate a continuation of the upward trend from 126.77.
The upper trendline from 145.95 and the lower trend line from 126.73 indicate that the currency is tranding within a tight range between 136.00 and 131.00. A break out of the tight range in either side is the area to watch for any long term trade, while a bounce of either support/resistance is a good point for either long or short trade. However the area to watch out for Monday is 131.00. Will it hold or will it not? That is the question that the market will answer next week.
The pending order above has been waiting there almost two months. If the price decides to visit the region, I'll be waiting. Another peep into the mindset of a mechanical trader.
A break of the lower trendline and 131.2x support will likely precipitate a fall to around 126.xx to complete the 2nd leg of the fall from 145.95. A break of the upper trendline and the strong resistance at 136.16 will clearly indicate a continuation of the upward trend from 126.77.
The upper trendline from 145.95 and the lower trend line from 126.73 indicate that the currency is tranding within a tight range between 136.00 and 131.00. A break out of the tight range in either side is the area to watch for any long term trade, while a bounce of either support/resistance is a good point for either long or short trade. However the area to watch out for Monday is 131.00. Will it hold or will it not? That is the question that the market will answer next week.
The pending order above has been waiting there almost two months. If the price decides to visit the region, I'll be waiting. Another peep into the mindset of a mechanical trader.
________________
GBPUSD Outlook GBPUSD weekly touched the Resistance at 1.5470x for the first time in three months thus completing the bullish reversal of the downtrend and erasing the 1267 pips drop from the 25th of April 2010. Will the resistance hold or will it break? The remaining period of this month will decide. The resistance will most likely be tested again to determine whether it will hold or break. Attached Thumbnails  |
TRADING GUIDE
GBPJPY is currently on the trendline beginning from 126.73 lowest point for the year so far. If the trendline is broken there is a support around 131.2x. If the trend line and support hold, there is the likelyhood of a reveral to around 136.00.
A break of the lower trendline and 131.2x support will likely precipitate a fall to around 126.xx to complete the 2nd leg of the fall from 145.95. A break of the upper trendline and the strong resistance at 136.16 will clearly indicate a continuation of the upward trend from 126.77.
The upper trendline from 145.95 and the lower trend line from 126.73 indicate that the currency is tranding within a tight range between 136.00 and 131.00. A break out of the tight range in either side is the area to watch for any long term trade, while a bounce of either support/resistance is a good point for either long or short trade. However the area to watch out for Monday is 131.00. Will it hold or will it not? That is the question that the market will answer next week.
The pending order above has been waiting there almost two months. If the price decides to visit the region, I'll be waiting. Another peep into the mindset of a mechanical trader.
A break of the lower trendline and 131.2x support will likely precipitate a fall to around 126.xx to complete the 2nd leg of the fall from 145.95. A break of the upper trendline and the strong resistance at 136.16 will clearly indicate a continuation of the upward trend from 126.77.
The upper trendline from 145.95 and the lower trend line from 126.73 indicate that the currency is tranding within a tight range between 136.00 and 131.00. A break out of the tight range in either side is the area to watch for any long term trade, while a bounce of either support/resistance is a good point for either long or short trade. However the area to watch out for Monday is 131.00. Will it hold or will it not? That is the question that the market will answer next week.
The pending order above has been waiting there almost two months. If the price decides to visit the region, I'll be waiting. Another peep into the mindset of a mechanical trader.
TRADING GUIDE
Let me digress a bit before into going into fundamental analysis and share 4 charts for GBPUSD with you. This to further demonstrate that price move in organised chaos. Organised chaos may appear contradictory, but within the chaotic movements of price action are clearly destinations.
From the charts below the following facts are obvious:
a) Price has dropped to another channel in the continuation of the upward trend
b) The M15 says the current upmove is approaching its climax
c) H1 is however saying tarry a while
d) H4 say the price is in the middle of an upmove
e) There is a resistance at around 1.5080x
f) Price is currently around the resistance
g) The top of current channel for the current move is around 1.5140
Let me now explain how to make a decision in this scenerio for a short-term trade. Your first consideration should be the the major resistance at around 1.5080x. If the resistance is broken, the next consideration is weather the upper limit of the current trendline hold.
After establishing this fact, the next thing to do as is to wait if the price would break any of two barriers. If price is unable to break any of the two, wait for reversal on H1 chart and M15 for your entry. To be successful, you should learn to wait. As for me I am waiting around 1.5140x - 1.5160x to short and join the ride down.
How do I wait? I don't wait by monitoring my charts, I simply place a pending sell order at 1.5150 and move on with my other important activities. The next thing is to simply check the system later to see if the trade clicks, if it does not I will delete the trade and wait for the next set-up. I realise over time that price don't move when you are watching. If your analyses are right, place your trades and leave the market to make its move. This is an insight into the psychology of a Mechanic Trader. I will discuss some of his other attributes as we go along
From the charts below the following facts are obvious:
a) Price has dropped to another channel in the continuation of the upward trend
b) The M15 says the current upmove is approaching its climax
c) H1 is however saying tarry a while
d) H4 say the price is in the middle of an upmove
e) There is a resistance at around 1.5080x
f) Price is currently around the resistance
g) The top of current channel for the current move is around 1.5140
Let me now explain how to make a decision in this scenerio for a short-term trade. Your first consideration should be the the major resistance at around 1.5080x. If the resistance is broken, the next consideration is weather the upper limit of the current trendline hold.
After establishing this fact, the next thing to do as is to wait if the price would break any of two barriers. If price is unable to break any of the two, wait for reversal on H1 chart and M15 for your entry. To be successful, you should learn to wait. As for me I am waiting around 1.5140x - 1.5160x to short and join the ride down.
How do I wait? I don't wait by monitoring my charts, I simply place a pending sell order at 1.5150 and move on with my other important activities. The next thing is to simply check the system later to see if the trade clicks, if it does not I will delete the trade and wait for the next set-up. I realise over time that price don't move when you are watching. If your analyses are right, place your trades and leave the market to make its move. This is an insight into the psychology of a Mechanic Trader. I will discuss some of his other attributes as we go along
TRAIDING GUIDE
For the Medium-term trade, W1 chart is my principal guide and I D1 to determine the current direction of the market and H4 or atimes H1 to identify my specific points of entry for such trades. I also use RSI 14 days period to determine the strength of any current price movement. Once the RSI is around 70 or below 30 the W1, in 95% of such situations, the trend reversal would most likely result in a movement of between 700 -above 1000 pips. My targets for such trades is usually between 400-500 pips. I allow such trades to roam for days or even weeks to in order to reach my target.
For my long term trades, I play like the big boys, I have two pending buy order at 118.00 for GBPJPY for some months now. I know the big boys will one day push the downtrend from 163 to that price to complete the 2nd leg of the downtrend. Whenever the price get to such levels, the retrace for curren is usually definitely more than 1000 pips. Before the price gets to 118-118 however, there is an unfinished business between 126-123.
The weekly chart for GBPUSD indicates that it is gradual get into the end of a wedge. It will either move out of the wedge or fall to around 1.33570 to complete the 2nd leg of fall from 1.70000. I am patiently waiting both currency pairs at those critical areas. However, while the wait is on, I will continue to implement my short term strategy
Forex trading is a product of habit and it is fond of repeating itself over and over again. A trader needs to have the big picture within his purview and understand the cycle to be able to play the game. You need to have both your short-term, medium term and long term strategy firmly in place if you don't want to be one of the casualties of the merciless forex world and stand out from the crowd.
I will discuss the importance of fundamental analysis in my next posting before discusssing the Mechanical Trader i.e. The trader without emotion.
For my long term trades, I play like the big boys, I have two pending buy order at 118.00 for GBPJPY for some months now. I know the big boys will one day push the downtrend from 163 to that price to complete the 2nd leg of the downtrend. Whenever the price get to such levels, the retrace for curren is usually definitely more than 1000 pips. Before the price gets to 118-118 however, there is an unfinished business between 126-123.
The weekly chart for GBPUSD indicates that it is gradual get into the end of a wedge. It will either move out of the wedge or fall to around 1.33570 to complete the 2nd leg of fall from 1.70000. I am patiently waiting both currency pairs at those critical areas. However, while the wait is on, I will continue to implement my short term strategy
Forex trading is a product of habit and it is fond of repeating itself over and over again. A trader needs to have the big picture within his purview and understand the cycle to be able to play the game. You need to have both your short-term, medium term and long term strategy firmly in place if you don't want to be one of the casualties of the merciless forex world and stand out from the crowd.
I will discuss the importance of fundamental analysis in my next posting before discusssing the Mechanical Trader i.e. The trader without emotion.
TIME TO TRADE
To determine what to trade is a matter of choice. I chose to trade mostly GBPUSD and GBPJPY because where my time zone is 1 hour ahead of GMT and the two currencies moves well on most days in terms of number of pips. Most experience traders advocate starting with one pair and adding others as you gather experience. This is very true. However, the rules of the charts apply to any pair. To determine when to trade, you need to understand trading times in various market. For example GBB pairs move best when London session is open, JPY pairs move best during the Asian session and USD pairs move most during US session.
Forex trading day begins at 6:00 PM Eastern U.S. When it is 5:00 PM on Sunday in New York, it is Monday morning in places like Australia and New Zealand. Overall, volume is low at this time of day because the three biggest Forex volume centers – Great Britain, the United States and Japan – are mostly inactive at this time. However, the Australian dollar and the New Zealand dollar (also known as the “Kiwi”) may see some price activity during these hours.
A few hours later, around 7:00 PM Eastern U.S. time, Japan awakens and the Forex markets begin to stir. Japan is the third largest Forex trading center, and comprises about 10% of all Forex trading volume, as many major banks have offices in Tokyo. The Japanese Yen is particularly active at this time, especially vs. the Euro, the U.S. dollar, and the Great Britain pound. Most of the volume occurs during the early part of the Japanese session, and the liquidity lessens considerably as the trading day continues.
As the Japanese trading day winds down around 3:00 AM Eastern U.S. time, European markets open for business, and the London trading day begins soon afterward. Great Britain is by far the most important and influential Forex trading market in the world. The dealing desks for many of the world’s major banks are run from London, and the market is responsible for roughly 30% of all spot forex volume. London tends to be the most orderly forex market due to its tremendous liquidity.
About midway through the London trading session, U.S. Forex traders come to life. New York is the second most important market in Forex trading. New York trading is very liquid and accounts for about 20% of the world’s total forex volume. Trading is especially active early in the New York session, as the London session is still ongoing. U.S. Economic news releases often occur early in the New York session, and can cause a tremendous amount of volatility.
Trading often becomes choppy after midday in New York as the London market winds down, and liquidity and volatility begin to dissipate. By mid to late afternoon New York time, London traders have gone home for the day, and it is late at night in Japan. New York traders, while still active at this time of day, have already finished with the bulk of their trading. Friday afternoons in the U.S. are generally the least active, because for much of the trading world, it is already Saturday. Finally, as the U.S. markets close, a new trading day is just about to begin in the western Pacific, as the Australian and New Zealand markets begin to stir, starting the process once again. The cycle continues all week, with most dealing desks closed from Friday afternoon until Sunday afternoon, when trading resumes.
Once you have an understanding of this cycle, it will assist you in planning your trades and only trade during the most effective periods.
Forex trading day begins at 6:00 PM Eastern U.S. When it is 5:00 PM on Sunday in New York, it is Monday morning in places like Australia and New Zealand. Overall, volume is low at this time of day because the three biggest Forex volume centers – Great Britain, the United States and Japan – are mostly inactive at this time. However, the Australian dollar and the New Zealand dollar (also known as the “Kiwi”) may see some price activity during these hours.
A few hours later, around 7:00 PM Eastern U.S. time, Japan awakens and the Forex markets begin to stir. Japan is the third largest Forex trading center, and comprises about 10% of all Forex trading volume, as many major banks have offices in Tokyo. The Japanese Yen is particularly active at this time, especially vs. the Euro, the U.S. dollar, and the Great Britain pound. Most of the volume occurs during the early part of the Japanese session, and the liquidity lessens considerably as the trading day continues.
As the Japanese trading day winds down around 3:00 AM Eastern U.S. time, European markets open for business, and the London trading day begins soon afterward. Great Britain is by far the most important and influential Forex trading market in the world. The dealing desks for many of the world’s major banks are run from London, and the market is responsible for roughly 30% of all spot forex volume. London tends to be the most orderly forex market due to its tremendous liquidity.
About midway through the London trading session, U.S. Forex traders come to life. New York is the second most important market in Forex trading. New York trading is very liquid and accounts for about 20% of the world’s total forex volume. Trading is especially active early in the New York session, as the London session is still ongoing. U.S. Economic news releases often occur early in the New York session, and can cause a tremendous amount of volatility.
Trading often becomes choppy after midday in New York as the London market winds down, and liquidity and volatility begin to dissipate. By mid to late afternoon New York time, London traders have gone home for the day, and it is late at night in Japan. New York traders, while still active at this time of day, have already finished with the bulk of their trading. Friday afternoons in the U.S. are generally the least active, because for much of the trading world, it is already Saturday. Finally, as the U.S. markets close, a new trading day is just about to begin in the western Pacific, as the Australian and New Zealand markets begin to stir, starting the process once again. The cycle continues all week, with most dealing desks closed from Friday afternoon until Sunday afternoon, when trading resumes.
Once you have an understanding of this cycle, it will assist you in planning your trades and only trade during the most effective periods.
FOREX TRADING 101 - CONT'D
The purpose of stop loss is simply to protect my trades from a totally unexpected, unusual, logic defying movement in price. For almost a year, my stop loss has never been hit for once. That doesn't mean, I don't have losing trades. I simply close losing trades if the loss will not affect either my monthly, weekly or daily targets. From my research I have realised that it is tight stop loss that creates panic which is major factor that kills most traders. For illustrative purpose, let us look at the implication 200 stop loss based on my recommended lot sizes for 3 hypothetical traders:
Account size Min. Lot size 200 pips stop loss @$1/PIP
$100 0.01 $20
$1,000 0.10 $200
$10,000 1.00 $2,000
The above examples are extreme cases, but the 3 traders above will survive the turbulence and live to trade again and again. Let me emphasise that where your trade is guided by informed planning, it is extreme rare for price to move 200 pips against you. This trading technique removes fear from your trading and develop your ability to develop the patience to pick between 50-100 and more per trade. Once you have the confidence, you will realise how easy it is to increase the lot size and and go for the kill. I will show why it is rare from the explanation below on how I entered my trades.
I am less concerned about all these fanciful indicators flying in this forum. In fact I don't have time to waste on studying them. Believe me, the facts are always very obvious on the charts once you have the sky-view of the landscape. For my short-term trade, H4 is my principal guide. I use H1 to determine the current direction of the market and M15 to determine my point of entry my trades. I use RSI 14 days period to determine the strength of any current price movement. Once the RSI is around 70 on the H4, in 95% of such situations, the trend is about to change. I will then move to H1 to actually confirm reversal of the trend and M15 to determine entrance. Thereafter I will check, where the price is situated at that time within the trend and support/resistance line to re-confirm the genuiness of the new trend. The next thing is simply to wait for the confirmation of the trend and enjoy the free ride. Nothing could be more simpler than this!
Account size Min. Lot size 200 pips stop loss @$1/PIP
$100 0.01 $20
$1,000 0.10 $200
$10,000 1.00 $2,000
The above examples are extreme cases, but the 3 traders above will survive the turbulence and live to trade again and again. Let me emphasise that where your trade is guided by informed planning, it is extreme rare for price to move 200 pips against you. This trading technique removes fear from your trading and develop your ability to develop the patience to pick between 50-100 and more per trade. Once you have the confidence, you will realise how easy it is to increase the lot size and and go for the kill. I will show why it is rare from the explanation below on how I entered my trades.
I am less concerned about all these fanciful indicators flying in this forum. In fact I don't have time to waste on studying them. Believe me, the facts are always very obvious on the charts once you have the sky-view of the landscape. For my short-term trade, H4 is my principal guide. I use H1 to determine the current direction of the market and M15 to determine my point of entry my trades. I use RSI 14 days period to determine the strength of any current price movement. Once the RSI is around 70 on the H4, in 95% of such situations, the trend is about to change. I will then move to H1 to actually confirm reversal of the trend and M15 to determine entrance. Thereafter I will check, where the price is situated at that time within the trend and support/resistance line to re-confirm the genuiness of the new trend. The next thing is simply to wait for the confirmation of the trend and enjoy the free ride. Nothing could be more simpler than this!
FOREX TRADING 101 - CONT'D
As you can see from the above chart GU is on an upward trend. The upper limit of the trend is located around 1.55129 and the current channel terminates at around 1.5370 before moving to the next channel. You can see the 5 major support/resistance zones indicate by the horizontal lines. You can also see how price reacted along the trend line. The strategy is simple go short when the price bounces off clearly established resistance levels or upper trend line,s take your profit somewhere in between. Alternatively, go long when the price bounces off established support level. Another successful strategy is once the trend is up, go long, take your profit at pre-determine level and wait for another opportunity when the price retraces to another support level or along the trend line to enter long again. Honestly, if you have a plan trading is easy. In my next postings, I will discuss more about trading and the simple indicators I use to guide my trade. When I conclude explaining my trading strategy, I will post the results for all to see.
FOREX TRADING 101 - CONT'D
Now to the specifics. How I enter and exit from trades. With this system the most important element is Money Management - since most traders are unable to really understand this, I develop the recommended lot size to account size which I posted earlier. As a recap
$100 (Min. 0.01 - Max 0.10)
$1000 (Min. 0.10 - Max 1)
$10000 (Min. 1 - Max 10)
Based on the above examples, If a trader trades the minimum, he needs to make only $1, $10 and $100 daily to grow his account by 20% every month. If you multpiply the returns by 2 you get 40%. This translates into 10 and 20 pips only per day.
I strongly recommend the minimum for beginners or traders who have not been making money consistently for 3-6 months in a row. To re-emphasise your first priority is fund preservation. If your profit is low at the beginning, but as you grow in confidence which come from consistent profit you will reap unbeliavable returns.
Let's go back to pending order you saw in the chart I posted earlier and reasons why I placed the sell limit and buy limit where I placed them. As I mentioned earlier, everything is about carefully planning. The chart below is my guide for trading GBPUSD this week. As at the time I placed the pending order, GBPUSD was trading 1.52268 as the highest point and 1.50812 as the lowest point. A clear range of 145 pips. Within the upward range the ceiling was roughly 1.522xx and the floor was 1.508xx.
My analysis revealed revealed that most of the time when the currency is trading within such a rectangular range, price will touch the highest (especially pins on 4H candle) and the lowest points a couple of times before it eventually break outs. I place such trades when I want at least 50 pips. I consider them as 50 pips bonus. As you can see from the current chart that price touch the point two times after I posted the chart and retrace more than 50 pips from both points. The retrace from the last time the price touch the highest point is currently over 100 pips.
Once I established the trend and range, the trend line, resistance/support guide my entrance into a trade.
$100 (Min. 0.01 - Max 0.10)
$1000 (Min. 0.10 - Max 1)
$10000 (Min. 1 - Max 10)
Based on the above examples, If a trader trades the minimum, he needs to make only $1, $10 and $100 daily to grow his account by 20% every month. If you multpiply the returns by 2 you get 40%. This translates into 10 and 20 pips only per day.
I strongly recommend the minimum for beginners or traders who have not been making money consistently for 3-6 months in a row. To re-emphasise your first priority is fund preservation. If your profit is low at the beginning, but as you grow in confidence which come from consistent profit you will reap unbeliavable returns.
Let's go back to pending order you saw in the chart I posted earlier and reasons why I placed the sell limit and buy limit where I placed them. As I mentioned earlier, everything is about carefully planning. The chart below is my guide for trading GBPUSD this week. As at the time I placed the pending order, GBPUSD was trading 1.52268 as the highest point and 1.50812 as the lowest point. A clear range of 145 pips. Within the upward range the ceiling was roughly 1.522xx and the floor was 1.508xx.
My analysis revealed revealed that most of the time when the currency is trading within such a rectangular range, price will touch the highest (especially pins on 4H candle) and the lowest points a couple of times before it eventually break outs. I place such trades when I want at least 50 pips. I consider them as 50 pips bonus. As you can see from the current chart that price touch the point two times after I posted the chart and retrace more than 50 pips from both points. The retrace from the last time the price touch the highest point is currently over 100 pips.
Once I established the trend and range, the trend line, resistance/support guide my entrance into a trade.
FOREX TRADING 101 - CONT'D
I also post here charts for GBPGPY, my favourite currency pair, which clearly show trends, S/R and various channels. The most important is don't trade blindly. know exactly what you are doing at everypoing in time. What I have done so far is to lay the foundation. In my next postings, I will now address the specifics on how to use the information to place trade, when to take profit, etc
The critical factor in achieving success as a trader is your ability to plan. You need to plan your trades to minutes details. You need to have a clear view of the following key issues:
a) Target monthly returns on investment i.e. 5%, 10%, 50% etc
b) Monthly returns on investment broken down into weekly and daily returns
c) Your target return clearly expressed in US$
d) Total number of pips required to meet your target broken down into daily and weekly pips required to meet your target.
e) The lot size commensurate to the value of your account. I will my analysis in respect of:
Daily Returns on Investment
Recommended ratio of lot size to account size
Returns on investment table
a) Target monthly returns on investment i.e. 5%, 10%, 50% etc
b) Monthly returns on investment broken down into weekly and daily returns
c) Your target return clearly expressed in US$
d) Total number of pips required to meet your target broken down into daily and weekly pips required to meet your target.
e) The lot size commensurate to the value of your account. I will my analysis in respect of:
Daily Returns on Investment
Recommended ratio of lot size to account size
Returns on investment table
The explanation is simple. For example, for $1000 account if your target returns on investment is 10%. This translates to $100 per month. To get your daily target divide $100 x 20 (trading days) = $5. This translates to $25 per week. Planning like this gives you a clear picture of your expectation. It makes it easier to trade. If on a good day you are able to achieve a profit of $25, you can easily make the decision not to trade for the rest of that week, since you have achieved your target. Furthermore, once you achieve your target for, you can stop trading for remaining days of the month. |
FOREX TRADING 101 - CONT'D
The critical factor in achieving success as a trader is your ability to plan. You need to plan your trades to minutes details. You need to have a clear view of the following key issues:
a) Target monthly returns on investment i.e. 5%, 10%, 50% etc
b) Monthly returns on investment broken down into weekly and daily returns
c) Your target return clearly expressed in US$
d) Total number of pips required to meet your target broken down into daily and weekly pips required to meet your target.
e) The lot size commensurate to the value of your account. I will my analysis in respect of:
Daily Returns on Investment
Recommended ratio of lot size to account size
Returns on investment table
a) Target monthly returns on investment i.e. 5%, 10%, 50% etc
b) Monthly returns on investment broken down into weekly and daily returns
c) Your target return clearly expressed in US$
d) Total number of pips required to meet your target broken down into daily and weekly pips required to meet your target.
e) The lot size commensurate to the value of your account. I will my analysis in respect of:
Daily Returns on Investment
Recommended ratio of lot size to account size
Returns on investment table
FOREX TRADING 101 - CONT'D
The simple answer to this is you should only trade when have an excellent set up i.e. when the possibility of success rate is more than 90%. In order words take only first class trade opportunities. If the opportunity is not first class, forget it and wait for another opportunity. What do I mean by this? I mean you need to have a clear view of the market. For example look at this chart below GBPUSD 4H. You can the trends, S/R and various channels cleary.
FOREX TRADING 101 - CONT'D
‘Leverage’: As I mentioned earlier Forex trading is often attractive to investors because Forex trading offers such high leverage. However, with increased buying power comes increased risk. The risk becomes higher as your leverage increases. This system is designed for a leverage of 100:1. Where your leverage is higher, you can balance it by reducing the number of your open trades or adjusting your stop loss to reduce your maximum exposure to the market to disaster level of 10%. Remember, you are not here to gamble your hard-earned money away but to grow your wealth over time. The table below provides the effect of the system on leverages of 100-500
If you follow all my postings right from the introduction to the ground rules, you will never fall as a trader. What you need to avoid are those items which constitute the graveyard of most trader.
Now that we have dealt with the ground rules, in my next postings we shall discuss the practical aspects of the trading system which covers the followings:
a) When to trade.
b) What to trade.
c) How to trade.
d) How to be a mechanical trader
e) How to remove stress and worries from your trade
f) How to trade and live your life at the same time.
g) How not to be a slave to the trading platform
h) How to come out successful 99% of the time.
i) How to ensure positive returns months after months.
If you follow all my postings right from the introduction to the ground rules, you will never fall as a trader. What you need to avoid are those items which constitute the graveyard of most trader.
Now that we have dealt with the ground rules, in my next postings we shall discuss the practical aspects of the trading system which covers the followings:
a) When to trade.
b) What to trade.
c) How to trade.
d) How to be a mechanical trader
e) How to remove stress and worries from your trade
f) How to trade and live your life at the same time.
g) How not to be a slave to the trading platform
h) How to come out successful 99% of the time.
i) How to ensure positive returns months after months.
FOREX TRADING 101 - CONT'D
RULE NO. 4:Five (5) maximum open trades at any point in time
‘Stop Loss’: With five maximum open trades at any point in time and your stop loss set at 200 pips, where the almost impossible happens and the market run against your five stop losses got hit, you maximum loss will only be 1000. For illustrative purpose, let us look at effect of 1000 pips loss on our hypothetical 3 traders on the table below. It is obvious that Trade1 will never survive such a loss even with one open trade, while Trade2 will not survive where he has up to 3 trades open, but Trader3 loss is only a mere $100 or 10% of his accounts.
You may want to ask if it is possible for market to move at such a rate. It is quite possible. GBPJPY recent fall 152.69 to 139.47 i.e. a fall of over 1,200 pips within a week, the last leg of the fall 400 pips occurred within 4 hours. Also EURUSD fail from its height of 1.5171 to 1.4191 i.e. a fall of over 1000 pips.
The Holy Grail Trader will survive any loss and have the fund to ride the market back on its way up or down and into profitability. How many traders can survive a loss of 1000 pips?
‘Stop Loss’: With five maximum open trades at any point in time and your stop loss set at 200 pips, where the almost impossible happens and the market run against your five stop losses got hit, you maximum loss will only be 1000. For illustrative purpose, let us look at effect of 1000 pips loss on our hypothetical 3 traders on the table below. It is obvious that Trade1 will never survive such a loss even with one open trade, while Trade2 will not survive where he has up to 3 trades open, but Trader3 loss is only a mere $100 or 10% of his accounts.
You may want to ask if it is possible for market to move at such a rate. It is quite possible. GBPJPY recent fall 152.69 to 139.47 i.e. a fall of over 1,200 pips within a week, the last leg of the fall 400 pips occurred within 4 hours. Also EURUSD fail from its height of 1.5171 to 1.4191 i.e. a fall of over 1000 pips.
The Holy Grail Trader will survive any loss and have the fund to ride the market back on its way up or down and into profitability. How many traders can survive a loss of 1000 pips?
FOREX TRADING 101 - CONT'D
RULE NO. 3: Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since every forex trade starts from the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 are easy targets, thus loosing money gradual until their account are is wipe out.
The Holy Grail rules work together i.e. once there is a clear trend (Rule No. 1), you use the recommended lot size for your account size (Rule No. 2), Rule No. 3 is to insulate your trade against any unusual, unexpected, manipulative, out of this worlds temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades. Most of the time I closed my trades manually when I have realised my target profit for the day, week or month.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade easily, while Trader3 SL was still intact and thus able to ride out the trade to profit.
‘Stop Loss’: Every new trader is told to use Stop Loss (SL) and Take Profit to manage his risk and increase profitability. The typical advise is ratio of 2:1 (TP 20:SL10; TP40:SL20; TP80;SL 40; etc). Since every forex trade starts from the position of a loss (i.e. traders’ spreads), the spreads range from 3-9 or even more, most traders setting their stop loss at 10, 20 or even 30 are easy targets, thus loosing money gradual until their account are is wipe out.
The Holy Grail rules work together i.e. once there is a clear trend (Rule No. 1), you use the recommended lot size for your account size (Rule No. 2), Rule No. 3 is to insulate your trade against any unusual, unexpected, manipulative, out of this worlds temporary development. I can assure you that your stop loss will get hit less than 10 out of a 200 trades. Most of the time I closed my trades manually when I have realised my target profit for the day, week or month.
For illustrative purpose, let us look at the chart below using the same example of our hypothetical 3 traders, where they bought at Buy1, Buy2 or Buy3. With their 20-30 SL they got stopped out of the trade easily, while Trader3 SL was still intact and thus able to ride out the trade to profit.
FOREX TRADING 101 - CONT'D
RULE NO. 2: Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
‘Lot size’ is another is another determinant of whether you will be a successful trader or not. Forex trading is often attractive to investors because Forex trading offers such high leverage. Without high leverage most retail investors would not be able to afford trading in the Forex market. However, with increased buying power comes increased risk. A quick market move can then result in substantial losses. Rule No. 2 allows managing your risk effectively and reducing it almost to an insignificant level. In forex you start you trading from the position of a loss (i.e. traders’ spreads) and there is no guaranty that you will turn your loss into gain.
Now, let us look at the effect of unpredictable market movements on 3 traders. Trader1 (experienced, knowledgeable but a high risk Trader), Trader 2 (experienced, knowledgeable but conservative trader), Trader 3 (Experience, inexperience but understands market trend). Multiply the situation below by 2, 3, or even 10 and you will realize by the time Trader1 and Trader2 are blown out of the market, Trader3 (you can call him the Immortal Trader or Holy Grail Trader) is just scratching the surface of his account.
‘Lot size’ is another is another determinant of whether you will be a successful trader or not. Forex trading is often attractive to investors because Forex trading offers such high leverage. Without high leverage most retail investors would not be able to afford trading in the Forex market. However, with increased buying power comes increased risk. A quick market move can then result in substantial losses. Rule No. 2 allows managing your risk effectively and reducing it almost to an insignificant level. In forex you start you trading from the position of a loss (i.e. traders’ spreads) and there is no guaranty that you will turn your loss into gain.
Now, let us look at the effect of unpredictable market movements on 3 traders. Trader1 (experienced, knowledgeable but a high risk Trader), Trader 2 (experienced, knowledgeable but conservative trader), Trader 3 (Experience, inexperience but understands market trend). Multiply the situation below by 2, 3, or even 10 and you will realize by the time Trader1 and Trader2 are blown out of the market, Trader3 (you can call him the Immortal Trader or Holy Grail Trader) is just scratching the surface of his account.
FOREX TRADING 101 - CONT'D
As promised in the last post, I will explain the five ground rules for this trading system beginning with Rule No. 1.
RULE NO. 1: Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
‘Trend’ is the most critical factor that can make or mar your life as a trader. What drives the market is the herd mentality, momentum or the fact that majority of the traders are going in one direction. The question is how far will they go before the momentum changes? To be successful you must learn to follow the general direction and make sure you disembark before a change of direction. To clearly understand the direction of the market, H1, H4 and daily charts are your guides. To illustrate this statement look at the EURUSD H1, H4 charts below. You can clear see direction of market from the charts. The simple message is if the trend is up go long of buy and if the trend is down, go short or sell. Forget about the indicators on the charts for now, they are not of any great importance for this trading system. I inserted them in my early days in forex trading, but rarely use them now as the direction of the market is obvious enough to the eye without any aid. They could however serve as a guide or confirmation of the trend.
RULE NO. 1: Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
‘Trend’ is the most critical factor that can make or mar your life as a trader. What drives the market is the herd mentality, momentum or the fact that majority of the traders are going in one direction. The question is how far will they go before the momentum changes? To be successful you must learn to follow the general direction and make sure you disembark before a change of direction. To clearly understand the direction of the market, H1, H4 and daily charts are your guides. To illustrate this statement look at the EURUSD H1, H4 charts below. You can clear see direction of market from the charts. The simple message is if the trend is up go long of buy and if the trend is down, go short or sell. Forget about the indicators on the charts for now, they are not of any great importance for this trading system. I inserted them in my early days in forex trading, but rarely use them now as the direction of the market is obvious enough to the eye without any aid. They could however serve as a guide or confirmation of the trend.
FOREX TRADING 101 - CONT'D
I will now discuss the ground rule for this perfect trading system
1) Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
2) Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
3) Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
4) Max open trades - 5 at any point in time
5) Leverage 100:1
I will explain the ground rules in my next posting.
1) Confirm the overall trend of the market before you place a trade (1H or 4H Candles)
2) Trade only 0.01% of your account at any point in time (e.g. 0.01 lots for $1,000 account, 0.02 lots on $2,000 etc)
3) Set you stop loss at 200 pips or no stop loss at all (manually close your trade if your stop loss is approaching 200 pips
4) Max open trades - 5 at any point in time
5) Leverage 100:1
I will explain the ground rules in my next posting.
FOREX TRADING 101 - CONT'D
Having discussed why most traders failed, I will now discuss how you can avoid being part of the infamous 95% failed traders.
From personal experience and studying the experience of others, I have come to realize that what is required to be successful traders are quite simple rules captured in the statement “Acquire as much knowledge as you can about forex trading, have a detailed plan in place on how to achieve your desired objective and imbibe the self-discipline to abide by your strategy." I will now attempt to address the pre-requisite for successful trading:
1) Acquire adequate knowledge about the forex market: It is essential to acquire enough knowledge on how the forex market operates. You should have understanding of the basic components of the market such as:
a. What is forex?
b. The global nature of forex market
c. The role of the brokers in having access to the market
d. Forex Market Hours and their impact on your trading
e. "Bid" vs. "Ask"
f. Things that influences Price
g. Profit Potential in Both Rising and Falling Markets
h. Currency pairs – the majors and the minors
i. The impact of margin on your trading in terms of profit and losses
j. Contract size and margin call
k. Percentage in Points (Pips)
l. Fundamental and Technical analysis
m. Demo trading
2) Do not see forex trading as an avenue to get-rich quickly: Forex trading is not a get rich scheme. You should aim at realistic returns on your investments, and you will increase your returns over time as you acquire knowledge, experience and expertise.
3) Adequate capitalisation: Forex is a business and should be treated as such. To have a chance of survival you need a minimum of $1,000 and your target should be to increase it over time to between $10,000 - $20,000 before you can begin to expect appreciable returns on your investment
4) Trading Strategy and Plan: You should have a trading plan/strategy in place to guide your trading. Put differently, plan your trade to the last detail before you enter any trade. Such plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
5) No trade is compulsory Do not enter a trade simply because you want to trade or the opportunity is too tempting to loose. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
6) Be very sure of the direction of the market before you enter a trade: Never trade in anticipation of the direction of the market. Let the market shows you its direction and follow the trend. Trading against the trend should be avoided at all cost because it has led to the downfall of many. For example in case of moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. A candle is not a candle until it is fully formed. You need two or three candles to confirm the direction of the market.
7) Your main objective should be fund preservation: Your first priority should be fund preservation. You are not in trading to throw away your hard-earned money foolishly. It is better not to make any profit in your account in a whole month than lose all trying to chase unrealizable profit. The key to preserving your fund is money management. Do not expose more that 1% of your account per each trade and your total exposure at any point time should not be more than 10% of your account. In case of major disaster, you will still have between 99% and 90% of your capital to fall back on.
8) Set realistic target of profit for yourself and take whatever the market gives you: Set realistic target of profit for yourself and stop trading if you achieve your target. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
9) Cut your losses and live to fight another day: Trading without stop losses is a perfect recipe for disaster. Set your stop loss target before your enter any trade. This will put in control of your loss. Allowing the market to control your loss is a sure way to quick annihilation, because the market could be ruthless.
10) Trade higher time frames: As a new trader, avoid short time frames and only trade higher time frames to guarantee your success. Trade only 1 hour, 4 hour and daily time frames only as a beginner, anything lower would end up in disappointment and heartache.
11) Be a mechanical trader As a new trader, you are psychologically equipped to handle live trading on your. Make your trading as mechanical as possible. What this means is that you do your analysis, know the direct of the market, set up your trade with stop loss, take profit target ensuring this are within your money management zone and leave the market to do the rest. Leave the trade, close your laptop or computer if you can and go out and do other things. Check back later and if your analysis is right, your profit will be waiting in your account. Where you are wrong your loss will be very insignificant. ‘Baby-sitting’ your trade will definitely shorten your life-span. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
12) The first 3-6 months is crucial to your trading life: The first three to six months is crucial to your trading. If you are able to make profit consistently no matter how small over the first 3-6 months of your trading life, you will be on auto-pilot if you stick to the same strategy, improve on its flaw and maintain the same discipline.
I believe we have enough discuss enough theory for now. Beginning from my next post, we shall begin to discuss practical trading that will guarantee you success.
From personal experience and studying the experience of others, I have come to realize that what is required to be successful traders are quite simple rules captured in the statement “Acquire as much knowledge as you can about forex trading, have a detailed plan in place on how to achieve your desired objective and imbibe the self-discipline to abide by your strategy." I will now attempt to address the pre-requisite for successful trading:
1) Acquire adequate knowledge about the forex market: It is essential to acquire enough knowledge on how the forex market operates. You should have understanding of the basic components of the market such as:
a. What is forex?
b. The global nature of forex market
c. The role of the brokers in having access to the market
d. Forex Market Hours and their impact on your trading
e. "Bid" vs. "Ask"
f. Things that influences Price
g. Profit Potential in Both Rising and Falling Markets
h. Currency pairs – the majors and the minors
i. The impact of margin on your trading in terms of profit and losses
j. Contract size and margin call
k. Percentage in Points (Pips)
l. Fundamental and Technical analysis
m. Demo trading
2) Do not see forex trading as an avenue to get-rich quickly: Forex trading is not a get rich scheme. You should aim at realistic returns on your investments, and you will increase your returns over time as you acquire knowledge, experience and expertise.
3) Adequate capitalisation: Forex is a business and should be treated as such. To have a chance of survival you need a minimum of $1,000 and your target should be to increase it over time to between $10,000 - $20,000 before you can begin to expect appreciable returns on your investment
4) Trading Strategy and Plan: You should have a trading plan/strategy in place to guide your trading. Put differently, plan your trade to the last detail before you enter any trade. Such plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour.
5) No trade is compulsory Do not enter a trade simply because you want to trade or the opportunity is too tempting to loose. No trade opportunity is compulsory as there are many more trade opportunities by the corner.
6) Be very sure of the direction of the market before you enter a trade: Never trade in anticipation of the direction of the market. Let the market shows you its direction and follow the trend. Trading against the trend should be avoided at all cost because it has led to the downfall of many. For example in case of moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. A candle is not a candle until it is fully formed. You need two or three candles to confirm the direction of the market.
7) Your main objective should be fund preservation: Your first priority should be fund preservation. You are not in trading to throw away your hard-earned money foolishly. It is better not to make any profit in your account in a whole month than lose all trying to chase unrealizable profit. The key to preserving your fund is money management. Do not expose more that 1% of your account per each trade and your total exposure at any point time should not be more than 10% of your account. In case of major disaster, you will still have between 99% and 90% of your capital to fall back on.
8) Set realistic target of profit for yourself and take whatever the market gives you: Set realistic target of profit for yourself and stop trading if you achieve your target. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally.
9) Cut your losses and live to fight another day: Trading without stop losses is a perfect recipe for disaster. Set your stop loss target before your enter any trade. This will put in control of your loss. Allowing the market to control your loss is a sure way to quick annihilation, because the market could be ruthless.
10) Trade higher time frames: As a new trader, avoid short time frames and only trade higher time frames to guarantee your success. Trade only 1 hour, 4 hour and daily time frames only as a beginner, anything lower would end up in disappointment and heartache.
11) Be a mechanical trader As a new trader, you are psychologically equipped to handle live trading on your. Make your trading as mechanical as possible. What this means is that you do your analysis, know the direct of the market, set up your trade with stop loss, take profit target ensuring this are within your money management zone and leave the market to do the rest. Leave the trade, close your laptop or computer if you can and go out and do other things. Check back later and if your analysis is right, your profit will be waiting in your account. Where you are wrong your loss will be very insignificant. ‘Baby-sitting’ your trade will definitely shorten your life-span. Live trading is high pressure game and is not meant for the inexperience and faint-hearted.
12) The first 3-6 months is crucial to your trading life: The first three to six months is crucial to your trading. If you are able to make profit consistently no matter how small over the first 3-6 months of your trading life, you will be on auto-pilot if you stick to the same strategy, improve on its flaw and maintain the same discipline.
I believe we have enough discuss enough theory for now. Beginning from my next post, we shall begin to discuss practical trading that will guarantee you success.
FOREX TRADING 101 - CONT'D
in my last posting, I promised to provide answers to some questions. To do this, I will first make an attempt to provide an insight into the reasons why most traders, failed with live accounts. These reasons are: a) Lack of knowledge or understanding of the forex market: Majority of new traders jumped into forex trading without adequate knowledge of how the market works. And it well-known fact that people perish for lack of knowledge. Such traders jumped into forex trading without being equipped with adequate knowledge on how the market works and ended up being swallowed within an instant. If you don’t have enough knowledge on how the market work, never open a live account or only open micro accounts with less that 1o% of the amount you wish to trade with. b) Most new traders think forex market in an avenue to get-rich quickly:Most new traders including this author are attracted to forex because of the misinformation that forex trading is an avenue to make quick money and the ultimate solutions to your financial worries. In fact, I was actually attracted to forex by the information that I can make between 10-30% of my account within 24 hours. How wrong I was! I started trading with the mindset to double my accounts every month. To achieve my target, I overtraded by opening many positions at the same time and whenever the market is in my favour, the reward is usually mind boggling. However, whenever the market turn against me, the consequence are usually disastrous. Most times, after increasing my account by 60% over two weeks or three weeks period, I often ended up blowing such accounts within two to three hours when the tide turned against me. The lesson is you should aim at realistic returns on your investments and increase your returns over time as you acquire knowledge, experience and expertise. c) Under-capitalisation: Most new traders started trader with gross under-capitalisation and ended up being annihilated within seconds. Most people starting with ridiculous low amount of between $100-$500 and expect to turn it into millions within months. How ridiculous! In a market where $1.5 trillion dollars are traded on a daily basis, majority of the traders are small flies capable of being crushed in milliseconds. Forex is business and should be treated as such. My advice is if you don’t have enough capital to start trading, don’t ever dream of opening a live account. The fact that you don’t have capital should not discourage you. For a start you can build your trading capital over time while acquiring skills through demo trading. If you have less than $1,000, don’t ever dream of trading live. d) Lack of trading plan: Most new traders enter trade without adequate trading plan or no plan at all. Such trading is akin to crossing a twenty-lane highway with your eyes close. For such a pedestrian, death is a sure certainty. Plan your trade to the last detail before your entry. Your plan should include, entry point, expected profit and exit point and retreat strategy (stop loss) if things go against you. Stick to this plan because it is your only chance of survival in this high risk endeavour. e) It is not compulsory that you must enter any trade:Most new traders never want to miss any opportunity. No trade opportunity is compulsory as there are many more trade opportunities by the corner. f) Be very sure of the direction of the market before you enter a trade Most inexperienced traders believe that they can predict or anticipate the direction of the market end enter a trade with such erroneous belief. This is usually not the case. Most of them are often fooled by what sideways movements. For moving averages, look for sharp angles and an obvious degree of separation between the two lines to determine upward and downward trend. Once this separation is obvious and a few candles have opened higher than the previous (lower than the previous in the case of a downwards trend) the market has shown its true colors. At this point, you should be looking to pull the trigger. g) Profit should never be your main motive principle Most new and inexperienced traders go into trading thinking that they could begin to make profit instantly. The fact of the matter is that most businesses do not begin to make profit until their fifth anniversary. Furthermore, most financial investments would be rated 1st class if they are able to return between 10-20% annually. In spite of these obvious facts, most traders think they can achieve a return of between 30-100% on a monthly basis. In other to achieve their unrealistic target they gamble away money and ended up being losers. The forex graveyard is full of greedy traders. Please don’t be part of the casuality. Your profit target should be realistic. If you are able to achieve a return of between 2-5% on a monthly basis, you would have outperformed most blue chips investment outfits in the world. As a new trader, fund preservation should be your number first priority and profit distance second. Once you acquire experience, making profit will come naturally. h) Cut your losses and live to fight another day Most new traders hate losing money by closing loosing trades. They often leave such with the expectation that the market will turn around in their favour. The resultant effect is that 40 pips ended ground to 100, 200, 200 and perhaps 1000 pips. The main message is cut your losses and live to fight another day! i) Psychological deficiencies Majority of new traders are psychologically deficient to handle trading live trading. Their trading is guided by inadequate knowledge, greed, desires to get rich quickly amongst others which are perfect recipes for disaster. As a new trader, make your trading as mechanical as possible because you definitely lack the psychological control to handle live trading. Live trading is high pressure game and is not meant for the inexperience and faint-hearted. In my next post I will address how to be a successful trade. Happy reading! |
FOREX TRADING 101
FOREX TRADING 101
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
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