Time to Trade
TIME TO TRADE FOREX
Most of the traders are not profitable because they are not acting well at the right time.
Okay, time to get into the trading. To date, I have explained what Forex is all about
so you should have a reasonably good idea of the basics. It is now a matter of
getting your hands dirty by actually doing a bit of trading. As mentioned earlier,
there are plenty of brokers out there that offer you the chance to demo trade. This is
a great idea, but please don't be fooled into thinking that you can replicate your
demo trading into your live trading without missing a beat. It is just not possible!
What I would suggest is that you open a live account that allows you to enter with
micro-lots (1 pip = 10c), so at least you are trading with real money. Not much I
know, but enough to keep you interested. Anyone can successfully trade a demo
account as there is just no actual risk or emotions involved.
As you have probably guessed by now, I am a technical trader, which means I look
at the charts to determine my trade entries etc. I don't trade the news, simply because
I don't understand it, but I am very aware of when major news is being released.
When I say I trade off the charts, it means I am using technical analysis. I
like the whole visual thing with charts. Now there are thousands of technical
indicators and trading methods out there. They are everywhere. Just look in any of
the big Forex trading forums and you will find plenty of free information on all
sorts of methods on trading from tick charts to the monthly charts. Some
information is good, but most of it is rubbish.
You have to remember, that
what may work well for one trader, may not work at all for
another. Also, you may have two traders trading the EUR/USD. Trader A may be
long, and Trader B may be short. Now naturally you would think that one of them
must be wrong, but what if Trader A was trading off a 1-minute chart and Trader B
was trading off a daily chart, then both of them may be correct in
their analysis (or both may be wrong). Different horses for different courses.
There are so many technical indicators out there that it would be difficult for me to
cover them all. I am aware of a lot of them, having tried most of them out. I know
quite quickly whether something works for me or not. I do have my favorite
indicators and I have ones that I have no idea of how anyone works out.
One thing I must say is that about 99% of technical indicators are lagging indicators.
That is, they only really move after the market moves, and their position is only
obvious after the market position is obvious. Anyone can look at the history (left
hand side) of a chart and see some beautiful moves based on an I do
choice. That hindsight is a great tool! I figure all I need is a time machine that puts
me about 1hr into the future and then lookout Forex. Getting a bit silly now, but you
can see what I mean. When you are trading live using your indicators and watching
the very far right of your chart (the current price), you only have an opinion of
which way the price is going to move next, as you do not know for certain which
way, it will go. Nobody does! All technical indicators do are give you a higher
probability of something happening in a particular direction based on your
interpretation of the indicator/s at the time.
They say a lot of technical indicators are self-fulfilling. What I mean by this is that a
a lot of traders use the same indicators and therefore expect the same thing to happen
at a particular point. An example would be using Pivot Points. The price is heading
up towards the R1 (1st resistance level), hits it briefly, and bounces back down. Was
Is it the actual R1 level that stopped the price or was it the case where many traders knew
about this level and set sell orders at that level, forcing price to bounce down off it?
Who knows? The same applies to popular Moving Averages like the 50 or 200, also
Fib Levels, Bollinger Bands, etc.
One thing you have to keep in mind is: PRICE IS KING.
Period!
You can have all the indicators in the world on your chart, with all the planets
aligned, where you think 100% that price is going in a certain direction, only to see
the exact opposite. There is no certainty in trading, so you have to be prepared for
the worst at all times. PRICE IS KING!
As a trader, I much prefer to open a trade in the direction of the market at the time,
or to say it another way, I go with the trend. Some traders will prefer to look for
turning points, where they will trade the opposite direction to the current trend. Go
back to my above example of the Pivot Points with price approaching the R1 level. I
would be more inclined to ride the trade up to that level and look at getting out near
that level if I had been long, whereas another trader may have placed an order to sell
at the R1 level, looking for that bounce down even though the price may have been
heading up there for the last few hours. There is nothing to say that the market will
stop and reverse at that R1 level, as it may continue right through without skipping a
beat. I still can't wrap my head around looking for turning points, but it has proved
quite successful for other traders.
I have seen quite a few different systems over the years, and have come to appreciate
the amount of effort and imagination that goes into some of them. A lot of these are
done by taking a standard indicator or idea, and slightly twisting it a bit so you
aren't doing what everyone else is doing. The trick is finding something that works
for you.
I use technical indicators, and I look at both short-term and long-term trading.
Sometimes I like to be done for the day quickly and other times, I have no problems
being constantly in the market. If I had a choice, I would much prefer to trade the
longer time frames just to cut out the noise. Also, I don't want to be sitting at my
a computer for hours on end, but then again, I enjoy the thrill of the chase. Sometimes
waiting for setups on the longer time frames gets a bit boring for me as I like a bit
more action. I guess I have to find a balance like everyone else, hence the reason I
have two accounts to cover both types of trading. The beauty of day trading is that it
doesn't matter if you miss a day or two, but if you are trading the bigger time
frames, you are quite committed to the markets.
Day Trading or Longer Term Trading?
I will cover short-term trading first. Most would call this Day Trading. If you are a
Day Trader, that means you will be in and out of the market within the same day or
session. Once you have finished for the day, you would have no open trades left.
They call this ‘being flat’ in trading jargon. I would prefer not to be sitting at my
a computer for hours on end if I can help it. You have probably gathered by now that I
have a specific target for the day, and this is normally around 20 pips profit. I have
been through the math and the power of compounding, so you know my thoughts on
this already.
With the day trading, I stick to trading just one pair, the EUR/USD. It is by far the
most popular pair to trade and it consistently has the lowest spread. On Oanda,
which is my day trading platform, the spread is normally less than 0.8 pip. If you
were trading a pair that had a spread of 5 pips, then as soon as you enter, the market
has to move at least 5 pips in your favor just to get you to break even. Trading the
one pair also allows you to concentrate all your efforts on that pair.
I will look at starting my trading any time after 2 pm local. This is the tail end of the
The Asian session is then followed by the London (European) session, and if I am
not done by then, it is into the US session.
As previously mentioned, I will check
with Forex Factory before I start to see what major news releases are due out that
may affect the EUR or the USD. I need to be aware of these so I can be prepared
around those times. Very important!
I won’t go into specific setups that Day Traders use; as there are just so many
variations I could not do them justice in this book. Some traders look to trade off 1
min charts, while others would look at the higher timeframes. An example could be
a Day Trader using the 5 min chart for entries and exits, but bases all these trades on
the direction of the 1hr chart, which acts as a filter of sorts. If you go into any of the
popular trading forums you will find thousands of examples of day tradsetusetups
With day trading, you have to go all-out effort-wise, with total concentration.
You have to be prepared to take small losses and keep chipping away at the market.
Just about every day, there are one or two decent moves on the 5 min chart that will
make it all worthwhile. Don't be greedy, going for the big kill every trade. Perhaps
start your day with a small trade looking for 5 pips just to give you that winning
feeling. There is a lot of discretion involved in day trading also, as it is very
difficult just to rely on indicators to get you in and out of trades. They certainly help
but there are plenty of times when you would just look at the chart and see
something doesn't look quite right, and in that case, you may give it a miss. You may
regret that decision, but that's trading. There will be plenty of trades coming along
soon enough.
Now I want to talk about long-term trading, where you can be in the same trade for
hours, days, or even weeks. When I say long term, I am normally referring to
trading off the 1hr, 4hr, or daily charts. Some traders may look to the weekly chart
or even the monthly chart, but that's not for me. Some may even refer to using the 1hr
and 4hr charts as Swing Trading. I find the problem trading off the 1hr charts is that
you tend to end up also doing a fair bit of screen monitoring, hence I lean towards
the 4hr and daily charts.
With the daily charts, I normally check my trades at least once a day, possibly twice.
My daily charts tick over to a new day at 8 am local, so I check them when I get up
first thing in the morning, and even though the new candle has not yet opened, I will
have a fair idea of what is happening as it is after the close of the US, and Asia hasn't
A journal or a diary can be as simple as an exercise book where you handwrite
everything. When I put pen to paper, it makes me think about what I am
doing and helps me confirm my thoughts at the time. You may decide to keep your
information online via an ongoing word document or something similar - just make
sure you keep copies and back it up as you go.
I also use excel spreadsheets at times, to provide an overview of results when I am
trialing different systems. One glance at these can give me a quick and accurate
overview of how a particular method is performing, especially if you add color to
it.
A Journal or Diary is not simply a place where you keep your trading results
recorded, it is much more than that. If you are trading a particular method, you may
wish to describe how it works in detail for future reference, and also to record any
modifications to the method as you go. You could also record the details of your
money management plan along with adjustments to the plan as you go.
Once you have traded a particular method for a while, you could make some
comments on how it is performing, and how it may be improved. Any mistakes you
have made should also be highlighted to ensure you don't make those same mistakes
over and over.
Maybe you would like to comment on how you are feeling at the time, or if you had
any technical problems, or any other outside interference that disrupted your
trading.
There is so much you can put into a Trading Journal/Diary, and it is up to you how
simple or complex you wish to take it.
Here is an example of my Journal entries. These are all handwritten in a large book
in handwriting that I think is a little hard to read and seems to be getting worse with
age! But I digress.
Before I start trading at all, I will go to my Trading Journal, write in the day and the
date, followed by my starting account balance. I am mainly a Day Trader, so every
the day is a new start for me so I don't have any open positions to worry about. I already
know my money management rules as they are loaded into my trading platform, but
I would have written this down previously in the Journal. Directly under the day and
date, I would put another subheading called 'News', and after checking the Forex
Factory Economic Calendar, I would note the time of any major news and the
the currency will affect. I don't care what the news is, just when it is coming out so I
can be prepared for it.
So my news info may be something simple like this: 10.30 pm – USD
This tells me that at 10.30 pm local, there is major news coming out that may affect
kicked in. A bit of a dead zone really, which suits me just fine. Then maybe in
the evening sometime, just to make sure there have been no dramatic changes. That
will do me. The 4hr charts require a little more monitoring but can still
fit nicely in with a normal day job.
Trading off the daily charts allows you plenty more free time to do the other things
in life, like go to the beach, walk the dogs, play chess, or whatever blows your hair
back. Because you have much more time and your trading decisions aren't rushed,
you can afford to follow several pairs at the same time. No need to limit yourself to
the one pair here. Also, spreads are not such an issue, because of the big moves
involved where even a biggish spread will be well and truly absorbed in the action.
But please be warned, you cannot take the same position size in your trades. There
are a couple of reasons for this. One is that it will be highly unlikely you will use
the same tight stops as you would use on a day trading (5 min) method. You may, but
I doubt it. Keep in mind your risk per trade. I have discussed risking 2% on each
trade, and if you were to use this figure, then that 2% must be maintained on these
types of trades also. So it only makes sense that if you used a 15 pip stop on a 5 mi
chart trade and were using a 150 pip stop on a daily chart, your position size on the
the daily chart is going to be a lot smaller.
And secondly, as you are more than likely trading several pairs at once, your
overall risk will be higher, especially if the pairs with open trades are highly
correlated like the EUR/USD and the USD/CHF. Again it is a risk issue, but more of
an overall risk. If you were to risk 2% on a long EUR trade and also 2% on a short
CHF trade, because of their very high correlation, your actual risk is more like 4%,
because if one goes wrong, then more than likely, so will the other. Just be aware of
your overall risk when you combine all your open trades. It may be a good idea to
look for the least correlated pairs to trade when several good signals appear on
your radar. A bit of common sense is required here.
Now you must keep in mind that you are trading off the daily charts, so you may
experience some huge moves against you, and a lot of traders may not be
comfortable being a couple of hundred pips or so down in a move against them. It
just doesn't sit well with them as it is playing with their mind. Remember some of
these majors move on average 100+ pips a day. You have to look at the big picture
though, because as soon as you nail the start of a good move, your profit can be in
the many hundreds or even thousand plus pips. These are the moves you want to
catch and trust me, there are plenty of them.
Trading several pairs may also help with an overall result (as long as you are not
wrong on every trade). You do have to look at the big picture and not just judge
your results on a daily or weekly basis. I would suggest you look to the month to
month results, as this will give you a much better overall indication of how your
daily chart trading is performing. You have to give it some time to prove itself one
way or the other.
Trading off the 4hr or Daily charts is a laid-back way of trading and may suit the
a trader that may have a normal day job or family duties that prevent them from
becoming a zombie and sitting at your computer for hours on end. The options are
fairly unlimited, and the trading forums will give you plenty of ideas if you are
having problems coming up with your system or method. You have to find
something that works for you, and something that you are comfortable with. Not all
trading systems are the same, nor are all traders the same.
Comments
Post a Comment