The FX market is a battle ground. A place where currencies fight it out and losers and gainers are determined. This article is essentially to show you the best way to begin a trading day; it is divided into two parts: trading psychology and trading method. The two skills a trader cannot do without is discipline and patience.
Trading is like going to war. You have to be physically and mentally fit. My trading day begins with a prayer, some pushups and sit-ups. I like to keep my body fat under a certain limit. After my morning exercises, I go running with my MP3 player for some music. During my run, I mentally go over the previous week’s trades, both the successful and not-so-successful ones. I remind myself of why my trades were successful and why others were not. I have a notepad by my system, where I write my trading mistakes. I do not keep a trading log; I can always check my trading history for that. By the time I get back home, I’ve burnt an appropriate amount of calories and I’m ready for the trading day.
Trading success to a large extent depends on your emotional state. Any feeling of stress, discomfort or depression will most likely lead to wrong trading decisions. Trading is a process that involves you doing the right things to get the right results. I make sure I don’t have any pressing family matters or urgencies before I begin trading. I recently became a full time trader; it’s a business I take very seriously. As much as possible I try to attain a stress-free state, before I open my first chart for the day.
My trading setup is rather simple. I use three charts: the four hour chart, the one hour chart and the fifteen minute chart. I use the 4h and 1H chart to determine the possible direction of the trend for the day, then I use the M15 chart to take my trading decisions. The trend is your friend. Anyone who has read any forex article would have seen that a lot. Yes, the trend is your friend, until it changes. The simplest systems are usually the best, and the best way to ensure that your system has a winning edge is to go with the trend as much as possible. I use MACD on the 4H and 1H chart. On the M15 chart, I use CCI (174) for my entries.
The 4H MACD gives me a general idea of market trend/possible reversals:
The 1H shows me the immediate trend:
The M15 gives me the best place to trigger my trades, or re-enter at pull backs
I use the +150 and -150 points to indicate over-bought and over-sold areas, respectively. But I still take only buy trades above zero and sell trades below zero.
So first, we prepare ourselves mentally and physically for the day, and then we apply our chosen trading system. When I get a trading signal, the first thing I do is take a deep breath. I have learnt not to chase a trade. The best trades usually wait for you. Even after a signal, I take some time to go over my three charts again, as much as possible I strive to make each trade exemplary.
The two problems traders have is when to trade and how much to trade. I prefer to trade under conditions of high volatility. I have realized that my targets would be met early if I trade when the market is “moving”. The best time for this is when the US and London markets are both open. And with regards to “how much to trade”, I usually risk between 5 -10% of my account. I don’t enter this percentage in a single trade; I prefer to enter in bits. For example, if I got a buy signal and 10% of my account is $400, I could start with a 0.2lots trade, which would yield $2 for every pip. With a 0.2 lots trade and risking 10% of my account, my SL (Stop Loss) would be 200pips i.e.
At $2/Pip: 2 x 200 = $400 (which is the amount I’m willing to risk)
With a 0.2 lots trade open, if the market moves in my favor, I could then add a 0.1 or another 0.2 lots trade. But whatever I do, I still ensure that my total risk amount does not exceed 10%, and adjust my SL accordingly. I also use a trailing profit of about 45pips depending on how volatile the pair is.
After I take a trade or series of trades, I usually switch off my system and charts. Why? Because there is a strong tendency to close winning trades early. Trading is like going to war, we prepare ourselves (train, exercise, healthy meals/diets), we get a strategy and we STICK TO IT.
Trading is a probability “game”. A currency pair can either go up or down, so we have a 50/50 chance of success (if you don’t count the spread). So our discipline to take our trades at the right time, let our winners run, not expose our entire purse will keep us in the game longer and profitably. By letting our winners run, we open ourselves to a sizable number of pips. These wins will more than be enough to cover for losses we may have on bad days.