Online Forex Trading principles

December 13th, 2007 expert Posted in FOREX TRADING STRATEGIES and CONCEPTS, FOREX TRADING ENTRY STRATEGIES, FOREX TRADING EXIT STRATEGIES |

Some interesting trading perspectives are presented below. Please read them carefully as many online forex traders have found that understanding only a small number of these perspectives has dramatically changed the way they trade. Most of the points presented have cost traders a lots of money to learn the hard way. This is an opportunity of learning from others mistakes.
 

1.     You DON’T need to know the direction the price is going to go to trade the Forex market.

This surprises many new Forex traders but straddle trading techniques will help you to have successful trades even when you are unsure of the direction the price will move.
 

2   The probability of a transaction being successful is dependent on the potential volatility behind the transaction. The amount of PUSH behind the move

Most traders spend 90% of their energy trying to find the direction on a move and only 10% on volatility. What’s the use of getting the direction 100% right when the move only goes for 15 pips.

3.    Trade ahead of the market. Anticipate the transaction before it happens.

High probability trades with appropriate entry points can normally be anticipated well in advance and programmed trades using entry orders (waiting orders) with targets and stops can be used.

4.    Knowing the rhythm and nature of the market allows you to trade appropriately.

Learn how to read the trading conditions of the FOREX market and how to take advantage of natural movement (Waves and channels) of the market. Also know when not to trade.  Most Traders ignore this and try to impose a technical analysis technique on inappropriate market conditions. This is probably the biggest cause of beginner  trader frustrations.

5.    Have a simple trigger that will get you into the market.

Firstly know which are trading signals and what is a trading trigger.

In the end the simpler you can make your trading techniques the better. Having hundreds of indicators makes trading complicated and confusing. Having simple but effective signals makes easy to make trading decisions (Pull the Trigger)
 

6    Use leading indicators to warn you about a potential transaction well in advance. Most indicators are lagging and give late signals.

The Forex market is faster than other markets and you need as much advanced warning about potential moves as what you can get.  Learn about leading indicators that give signals well in advance of the more traditional indicators.

7   Keep Emotions out of the trade as much as possible.

There are many ways of automating all the elements of a trade so that you don’t have to watch the screen all day long and become emotional about the outcome of the transaction (using entry orders etc.)

8    Before you trade live thoroughly back test and demo trade your technique.

Properly test and improve your strategies before going live. 90% of new traders start trading a technique that they have not personally tested. They go on the trust of what they have been told.

Testing a technique ensures that you can apply it under any conditions and that you understand it. It also gives you an opportunity to add improvements.

9    Keep your safety stops out of the traffic.

In appropriate placement of stops is a mjor cause of trading failure. In many cases an unsuccessful technique can become successful by just increasing the stop levels. Spend time finding your personal comfort level in this area. There are a number of techniques to not use stops at all.
 

10    Successful traders find the exit of a successful transaction is the most difficult part of trading.

Exiting transactions optimally takes experience.  many ways are discussed on this glog.

11     Assume that the market will trend in the direction that it is currently going until you see conclusive proof of a possible reversal

The objective of trading is to enter a new trend and stick with it until it is over.

12     Money and risk management is essential to a long term relationship with the Forex Market

Many methods used by successful traders are presented for your consideration. I don’t make recommendations or give advice in this area but knowing the alternatives enable you consider am appropriate one your way of trading

13     Technical Analysis techniques have strengths and weaknesses. Know both. Know then to use Technical Analysis and when not.

Certain indicators only work in trending markets and others in trading markets. Some trades can be done without charts. learn as much as you can about trading.

14    A trading strategy contains the time frame traded, warning signals, trigger signals, ways of managing the transaction, way of exiting the transaction, money management approach and risk management. It is not only about the entry

Find a personal trading strategy that takes your personal circumstance into account.

15  The trading process consists of doing an environmental scan, identifying possible future transactions, entering the transaction, managing the transaction, exiting the transaction, doing a post mortem and reviewing your trading strategy.

Build competency in all these areas.

16     In general the longer term charts (Daily, 4 Hr and 1 Hr) give more reliable signals than the shorter term ones (30min, 15 min, 5 min and 1 min) which are subject to noise.

Be aware of the many scalping (short term) and position trading (longer term) strategies available to trad the Forex market.  Knowing the alternatives will help you develop a personal strategy