My online Forex Trading Strategies

Many of you that read my blog know that I am a full time online forex trader. I have come a long away and learnt many a thing. In this article, I would like to share some of the strategies that I use and why I avoid certain things even if other traders use them. Most of these, I have come to learn through experience and I adopted them as my personal guidelines. They may or may not apply to all traders.

1.    Knowledge is power. Any trader must have the knowledge to know what drives the markets. Both fundamental and technical analysis but mostly fundamentals since fundamentals cause lots of action in the markets. I started out by learning technical analysis. It was much easier for me to analyze graphs, candle stick patterns and to read indicators (maybe this was because of my background having been a web applications developer). I never gave much attention to fundamentals. But I realized later that fundamentals shake the markets.  Prices move when news comes out. Missing out on taking a trade during these price movements means that you will wait for the news to calm down and then you trade the noise.  Be informed, know when the news is coming out, keep a trading journal and know which news moves the markets so that you are alert. Technical analysis is great too. However, fundamentals shake the markets and create big price movements that we traders are interested in. Know when the news alerts are expected and be ready to trade.

2.    Leverage: This is a double edged sword. The broker encourages you to have a higher leverage. Many are now offering 1:500 and others even offer 1:1000. The catch is that the more leverage you have, the more you will be able to hold more positions and hence the more spreads the brokers will earn. So the bigger your position, the bigger the spread income for your broker. Find reasonable leverage. I am still conservative and using 1:100

3.    Stop Loss - allow the trade to breathe. Never trade without a stop loss. Even if you are very sure that the trade will not reverse. I still insist that you trade with a stop loss. Avoid putting a very tight stop loss. Put a reasonable stop loss that does not expose too much of your account and yet allows the trade to breathe. Tight stop losses only benefit the broker. Before entering a trade, calculate how many pips are on the trade, calculate the loss you expect to incur should the trade not go accordingly and place the stop loss. Never adjust a stop loss to expose more of your account. Only adjust your stop loss to rock in more profit. But all in all, never trade without a stop loss and ensure that the stop loss allows the trade to breathe.

4.    Scalping. Many of my friends that have seen me trading know me as a super scalper. I am good at scalping but I have left it. Not that it does not work, no it does work. However, I believe identifying a trend and riding it till the end is a better way to trade. Why get out of a trade if it is still in profits?? I have realized the “Let you profits run mindset” is better than scalping. This will ensure that you will have fewer trades and all those trades will be profitable trades if you are with the trend. Identify a trend and ride it – don’t scalp. Move your stop loss to rock in more profit as you bank and ride the trend.

Trading is making decisions: Do not allow others to make your decisions. Either be the trader or let others trade for you but avoid relying on others to make decisions for you. So what do we call a trader that does not make any decision but allows or follows others to make those decisions? Trading is basically making a choice of when to enter a trade and when to exit. The reasons why you enter a trade are personal to your trading strategy and you should stick to it. If you are still learning, however, it is much advised that to follow your mentor until you reach a level where you are able to make your own choices.

5.    Trading Plans: There are so many indicators out there. Lots of them.  There are so many candle stick patterns, so many trend line patterns, so many signal indicators and all. I have realized that you can never  use all of them at once. However, if you find any that works for you, stick to it and test new ones while you stick to the one that works for you. Have a trading plan and stick to it. I used to chase trades when I had just started trading. I always wanted a trade to fit in my plan, if it failed, I would change the indicator to find one that suites it and then I would enter a trade. Avoid chasing trades. Let trades fall into your comfort zone – trading strategy then enter the trade. And by the way, “making money” is not a trading strategy. A good trading strategy must not contain more than 3 indicators.

6.    Entry and exit points: This may not apply to scalpers but why enter a trade to target only 20 points? If I find that I cannot make off 30 points on  a trade, I just don’t take it. I let it pass and wait for a trade where I will make off at least 30 pips or more. Now for the exit, if you realize that a trade is going against you, get out of the trade. Why compound your damage while keeping in a losing trade. Losing trades will hold your equity, lower your margin and may never reverse in a long time. I have held positions for months and I can tell you it’s pathetic. You miss out on good trades simply because you are holding a losing trade hoping that it will correct. That’s why we have stop losses. Use them.  On the other hand, why exit a winning trade simply because you are bored or want to relieve stress. A beach without sand is no beach at all. Trading without stress is no trading at all. If you don’t like sand, avoid the beach – likewise, if you cannot handle stress, just stop trading. I always keep my winning trades running but bank along the way.

7.    Intellectuals: I am no expert via banking and finance nor am I an expert in International business. I am not even an expert in economics. I am just a trader. However, I find it so weird when the financial experts tell you that a certain pair will go up or down based on the economics of a particular theory that was applied in such and  such a time. All signs are there so the given pair will follow suite. Bullshit. Rarely does it happen. In fact, I have yet to see such theories come true in markets. Most of the great traders I know are ex-window cleaners, high school drop outs and teachers. I am yet to see PHD holders who are great traders. So basically, I suggest that we keep trading simple and to the basics. No need for theories and theses on why a pair went up last year and this year. Markets are driven by demand and supply. Period.

8.    Emotions versus robots: It is said that when emotions are high, reasoning is low. This is true also for markets. You will not trade well if you are emotionally unstable. You need to have your composure in balance. Plan your trades and follow your trading strategy. Prepare well enough. Having no trading strategy basically leaves you with just thoughts. Thoughts are emotions and trading based on emotions is a recipe for disaster. On the other hand, robots have no emotions and will enter for you trades and exit trades based on the programmed strategies. But recall, markets are moved by demand and supply and hence they are not random. Since they are not random, no robot will be programmed to function 100% in all market conditions. Some will do well in ranging markets; others will do well in trending markets. Only humans can do well in all market conditions. A robot is just software that places or exits a trade based on the programmed strategies without human input. I have used robots in the past. I will blog about that later. My take on robots is that none works in all market conditions. You need to know when to use it and when to disable it. The main reason is that markets are not random so robots cannot handle. Markets are driven by human choices not robots. Balance your emotions and face the markets well composed.

9.    Confidence: This only comes from having a trading strategy that you stick to. None gains confidence from losing trades. And if you happen to have a losing trade, close it out and look for another trade. It is just a trade. Why get married to a losing trade till it wipes out your account? Confidence only comes when you follow a trading plan and it produces results. Don’t hop from one strategy to another. Stick with one and test it for a good number of days if it does not work, throw it out and look for another till you get something that works for you. Only then will you have confidence in your trading. Confidence also involves accepting losses and knowing that there will always be another winning trade.

10.     Water and Paraffin. Have you ever realized that the AUD/USD is bullish and you decide to buy the EUR/USD based on the fact that since AUD/USD is bullish so must be EUR/USD. Well, I was a victim of that theory. I had no clue I was mixing water and paraffin. They just don’t mix. What makes the AUD/USD bullish does not necessary make the cable (GBP/USD) or EUR/USD bullish. They are independent pairs. Yes they may trend each other but don’t fall victim like I was when I had started trading. Follow your trading plan. And by the way, simply because EUR/USD is going up is not reason enough to buy. Find out why it’s going up and where it’s bound to stop. How long has it been going up? Is it a buy trend? Is it a news spike?

11.    Demos. Trading and making money off a demo is no guarantee that you have mastered trading. I believe demos only help people to get used to the trading platform, how to place trades, exit trades, add indicators and get familiar with charts. Once a person is familiar with the trading platform, one should then begin the journey of learning by opening up a live account and deposit real money.

12.    Don’t give up too easily. Your first trade for the day may be the worst. Don’t close and give up trading. All traders lose. Getting trades wrong is normal and should be expected. Look at the daily balance and weekly balance. I have a daily target and I use it. Once hit, I stop trading.