Okay, I've pretty well covered Fundamental Trading (news events), so now it is time to get into the other common way of trading, and that is called Technical Trading. Most of this trading is done off the charts, hence the expression 'chartists' or 'technical analysis' etc. This is the way I trade, and it is the way of how a lot of others trade also.
Earlier I discussed how most Forex brokers offer a charting package with their platform, and how the live data was free. This is good as it keeps costs down. Some of these platforms have excellent charts, like the MT4 platform or even VT. This is where Oanda is a bit of a let down as their charting capabilities just don't compare. Having said that, you can still trade off Oanda charts no problems at all, they just haven't got all the bells and whistles.
Now with technical trading, you can be as simple or complex as you like. I am not going to go into all the various indicators, fibs, pivots, breakouts, trend lines etc. There are literally thousands of ways to trade and the internet is swamped by them, as are the more popular trading forums. So you can do your own research here and find something that suits you.
But I will talk about time frames. As we already know, the Forex market runs 24hrs a day during the week, so there is plenty of opportunity to trade. Remember the previous discussion on the different sessions also, which helps with regards to identify when the action is more likely to occur.
On the trading platforms, most brokers offer 1 minute, 5 minute, 15 minute, 30 minute, 60 minute, 4 hour, daily, weekly and monthly charts. That's the majority of them. Some also offer tick, 10 minute, 2 hour and 3 hour charts. There was one platform, who's name escapes me, offered any time frame you desired, so if you wanted to trade off a 45 minute chart, it was possible. Remember all this data is live and it's free.
Every one wants to be a Day Trader! Me included. I think it is just a romantic notion that is built into the human make up. It is especially cool if someone asks you what you do for a living, and you reply "I'm a Day Trader". Sounds impressive. I wish it was that easy though.
Because the charts and the data are so good, you are always tempted to keep on shortening the time frame, where eventually you will be trying to scalp off the 1 minute charts. All sounds good in theory, but very difficult to do.
Look, I'm not saying it can't be done as I am sure there are a few successful scalpers out there. Not many I would imagine, but enough to show that it is possible. I have tried all time frames, and even though I have probably had most success on the longer time frames like 4 hours and above, I am still a Day Trader at heart.
Again, this is a decision you have to make, whether you want to be in a trade for days or minutes. Trading the longer time frames will obviously give you less trades, but more than likely larger profits, and spend more time monitoring than actually trading. Trading off the shorter time frames will give you more action, more spreads to make up, more than likely smaller profits. Then you would have considerations like stop size. Trading on a Daily chart may require you to have a stop 120 pips away from your entry price, and when you consider the 2% risk rule, you would end up with a much smaller position size. Now if you were trading off the 5 minute chart and had a 15 pip stop, and using the same 2% risk, you can see that your position size would be much larger. The trade off being the possible potential profit as I'd expect to drag a lot more pips from a Daily chart trade than a 5 minute chart trade. Bit of a catch 22 here.
Then you have to decide which pair or pairs you want to trade. If you are trading multiple pairs on the larger time frames, it is quite easy to do so. This may also help with giving you more action, if that is what you are after. But trading multiple pairs on the smaller time frames can be a little stressful and sometimes difficult to keep control of when things start moving quickly. It also plays with your mind a bit, especially if you have a losing trade on one pair and try to make up for it on another pair, which may cause you to ignore your normal exit rules. I think they call this revenge trading.
If you are going to trade off the smaller time frames, may I strongly suggest you concentrate on one pair to start with. This just makes life a lot easier and you can put all your efforts into this one pair.
My bread and butter set up, is just the EUR/USD on the 5 minute chart, with a 60 minute chart next to it, just to give me an idea of the general trend. I have a couple of basic indicators on both charts. I chose the EUR/USD for a couple of reasons. One it has the lowest spread on Oanda, dropping down as low as 0.9 pip during normal trading times, and two, it is by far the most popular currency pair traded. I think it accounts for close to 70% of total Forex volume. Don't quote me on that though! I have a target amount of pips for the day and then I am done. I close down my charts and do other stuff. I sleep better when I have no trades on.
The above is what I do, and what works for me. It may not work for you and I'm certainly not trying to convince anyone to follow my path. I'll discuss specifics on my trading at a later date. If you have had experience at trading anything, you will know that there are thousands of different ways to trade, and Forex is no different.
If you were after a pretty good book on Trading in general, then may I suggest a book called 'High Probability Trading' by Marcel Link. It covers all the major topics and is quite informative considering it is such a huge topic. He does a good job of covering a lot of it. Wouldn't be out of place in any good trading library. The other book I would suggest is 'Google' as it is the world's biggest library by far, but please remember a lot of it is rubbish. You have to sort out the good from the bad.
Just looking through my notes, and there is still plenty to discuss....
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Article by Jim Brown
For my personal Forex Trading please visit http://www.accurateforextrader.com
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