FOREX TRADING 101
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
I will make efforts to provide answers to some of these questions in my next post.
ADDITIONAL INFORMATION
This thread has evolved over the last few years and one of the important posts which I thought I should share on this page is the "The mindset of a successful trader". This post encapsulate my trading philosophy. You should endeavour to look for the posts related to the steps mentioned here. These posts are some of the most important ones. As times goes on, I will provide the links to these important posts and update them depending on new findings. Knowledge is dynamic, it is not static. Read on.
THE MINDSET OF A SUCCESSFUL TRADER!
For those who have been following this thread for quite a while, you should have by now be in a position to trade with confidence. That notwithstanding, I will today discuss the following specific stepson how to think, act and develop the mindset of a successful forex trader:
Step 1: Trade the Masterchart. It should be your No. 1 guide. The levels on the Masterchats I posted here are products of extensive research. What is happening in the forex market is that series of bad/good news (fundamental), manipulation/greed by the big players (banks, hedge funds etc) and most times fear/panic by the investing public will always push the price from one support/resistance level to another. The truth of the matter is that the world economy generally is in shambles that is why you will constantly see series of bad economic news followed by series of good news resulting in “bull+bear+bull+bear” usually repeated over and over again on your weekly chart.
Step 2: Trade in the direction of the weekly chart: The most reliable direction in the forex is the direction of the weekly. If the weekly is in a bear/bull mode it could stay that way for 4-10 weeks. Read the post on understanding trend to better understand how to see the bigger picture using the weekly chart.
Step 3: The best trading opportunities are in the weekly: To increase your chance of success, sell only the top of nN, mM and buy around the base of V, U and W on the weekly charts. To identify these level signs, open a weekly chart, look closely and you will begin to recognize them. This simple trick will make your trading live a lot easier. I will begin to post this signs on this thread.
Step 4: Use money management: Use my recommended money management lots/account size ratio as follows:
0.01 lot for $1000 Trading account (max of 5 open trades at the same time)
0.10 lots for $10000 trading account (max of 5 open trades at the same time trades), etc
If you gather more experience or make money regularly, you can gradually increase your lot sizes or open trades to double the recommended lot sizes.
Go through the early part of this thread for a better understanding of my views of money management.
Step 5: Trade the daily trade-friendly chart: The weekly is your guide and the daily is your main field of play. Trade the daily chart following the direction of the weekly. Study some of the daily charts I have on this thread for better understanding of the daily charts.
Step 6: Trade 1000+ Pips circle. Read and understand the 1000 pips price actions analysis. For the major pairs from the pin of a weekly candle expect 1000 and more before any major reversal. If the destination of 1000 pips PAA is closer to a major support/resistance on the master chart anticipate a touch of that level. Identifies expected levels in advance and you only monitor price reaction around such areas.
Step 7: Avoid thinking in terms of pips. Avoid thinking in terms of pips but in terms of actual currencies e.g. cent, pence, etc. If you think this way you will avoid the graveyard of most forex traders (i.e. chasing low pips (below 100 pip). If you think in terms of currency you will realize that a move 1000 pips move by GBPUSD move from 1.54000 to 1.64000 is a mere 10 cents. Further a 1000 pips move on GPBJPY from 130 to 120 is a merely 10 yen.
Step 8: Use H4 50 Pips Price Action Analysis. Utilise price movement on H4 candles within 50 pips range to determine where to enter a trade. If you do this you will realize that you can have up 16 hours and more to enter a trade. Trading this way you do not need to sit in monitor your chart endlessly to get trading opportunities. In the worst case scenario you only need to check the chart every 4 hours.
Step 9: Enter trades using only M15 trade-friendly chart: When the price get to your desired areas on the higher time, enter your trades at the best discounts by using M15 on a trade-friendly chart. If you need further explanation read my previous post about creating a trade-friendly chart.
Step 10: Understanding the importance of 50 point level on RSI: 50 point level on RSI on your trade-friendly chart is usually an area where price normally stalls, changes direction or continues on any time frame. Study how price react at this point for a better understanding of price action.
Step 11: Set concrete zone on H4 chart: Price usually trade for most major currency pairs within 250-400 pips over a period of time within a concrete zone. The concrete zone is a good guide on where to place stop losses. For your short term trade, place stop losses slightly above the concrete zone for your sell and slightly below for your buy. Read my previous posts on concrete zone for better understanding of the concrete zones.
Step 12: Stop loss: Most traders recommend that you should not risk more than 2% of your account per trade. This is a fair recommendation, but I do not support tight stop loss. With my maximum recommended lot size/account ratio 2% account risk per trade on $1000 account size trading 0.01 lots is $20 i.e. 200 pips (If you trade the maximum you increase your exposure to 10%). The important thing about stop loss is money management, if your lot size is small you can afford to increase you stop loss settings and give your trades room to breathe. Read my views of stop loss in some of my earlier posts.
Step 13: Take profit at pre-determined level: Set your take profit at pre-determined points depending on your expected returns. If you are trading the weekly chart anything less than 200 pips is a waste of efforts. You should be aiming for 200 pips and above.
INTRODUCTION
Trading internet foreign exchange (forex) is a very high risk business. It is important to have a sound Knowledge of the operation of the forex market and the risks involved to be successful. Forex market could be likened to a mighty ocean and retail traders are small fish swimming with sharks. It is very easy for such traders to be devoured within an instant resulting in financial ruins. Most traders often fall into this dangerous trap. The fact of the matter is that the odds are simply against the retail traders. The question at this point is how do you survive in very dangerous environment that has ruined the life of many? The statement that 95% of forex traders will end up being as failure is well-known to all forex traders. What are the things that a forex trader need to do to avoid being part of the statistics of failed trader and be counted among the 5% elites of successful traders?
WHY MOST NEW TRADERS FAILED
I considered it necessary to address why most traders failed because majority of them come to the market with the mindset that forex trading is the easiest way of making money. Having studied forex critically for the past six months by learning from leading forex websites, books, experienced traders in various forums, attending seminars and trading over 10 systems both in demo and life accounts, I have come to realize that what is required to be successful traders are quite simple rules. In the process, I have blown over five accounts both life and demo. I even reached a point where I was making constant profits on my demo accounts, but ended up still blowing my live accounts. Why am I a successful with demo accounts and end up failing with life accounts?
I will make efforts to provide answers to some of these questions in my next post.
ADDITIONAL INFORMATION
This thread has evolved over the last few years and one of the important posts which I thought I should share on this page is the "The mindset of a successful trader". This post encapsulate my trading philosophy. You should endeavour to look for the posts related to the steps mentioned here. These posts are some of the most important ones. As times goes on, I will provide the links to these important posts and update them depending on new findings. Knowledge is dynamic, it is not static. Read on.
THE MINDSET OF A SUCCESSFUL TRADER!
For those who have been following this thread for quite a while, you should have by now be in a position to trade with confidence. That notwithstanding, I will today discuss the following specific stepson how to think, act and develop the mindset of a successful forex trader:
Step 1: Trade the Masterchart. It should be your No. 1 guide. The levels on the Masterchats I posted here are products of extensive research. What is happening in the forex market is that series of bad/good news (fundamental), manipulation/greed by the big players (banks, hedge funds etc) and most times fear/panic by the investing public will always push the price from one support/resistance level to another. The truth of the matter is that the world economy generally is in shambles that is why you will constantly see series of bad economic news followed by series of good news resulting in “bull+bear+bull+bear” usually repeated over and over again on your weekly chart.
Step 2: Trade in the direction of the weekly chart: The most reliable direction in the forex is the direction of the weekly. If the weekly is in a bear/bull mode it could stay that way for 4-10 weeks. Read the post on understanding trend to better understand how to see the bigger picture using the weekly chart.
Step 3: The best trading opportunities are in the weekly: To increase your chance of success, sell only the top of nN, mM and buy around the base of V, U and W on the weekly charts. To identify these level signs, open a weekly chart, look closely and you will begin to recognize them. This simple trick will make your trading live a lot easier. I will begin to post this signs on this thread.
Step 4: Use money management: Use my recommended money management lots/account size ratio as follows:
0.01 lot for $1000 Trading account (max of 5 open trades at the same time)
0.10 lots for $10000 trading account (max of 5 open trades at the same time trades), etc
If you gather more experience or make money regularly, you can gradually increase your lot sizes or open trades to double the recommended lot sizes.
Go through the early part of this thread for a better understanding of my views of money management.
Step 5: Trade the daily trade-friendly chart: The weekly is your guide and the daily is your main field of play. Trade the daily chart following the direction of the weekly. Study some of the daily charts I have on this thread for better understanding of the daily charts.
Step 6: Trade 1000+ Pips circle. Read and understand the 1000 pips price actions analysis. For the major pairs from the pin of a weekly candle expect 1000 and more before any major reversal. If the destination of 1000 pips PAA is closer to a major support/resistance on the master chart anticipate a touch of that level. Identifies expected levels in advance and you only monitor price reaction around such areas.
Step 7: Avoid thinking in terms of pips. Avoid thinking in terms of pips but in terms of actual currencies e.g. cent, pence, etc. If you think this way you will avoid the graveyard of most forex traders (i.e. chasing low pips (below 100 pip). If you think in terms of currency you will realize that a move 1000 pips move by GBPUSD move from 1.54000 to 1.64000 is a mere 10 cents. Further a 1000 pips move on GPBJPY from 130 to 120 is a merely 10 yen.
Step 8: Use H4 50 Pips Price Action Analysis. Utilise price movement on H4 candles within 50 pips range to determine where to enter a trade. If you do this you will realize that you can have up 16 hours and more to enter a trade. Trading this way you do not need to sit in monitor your chart endlessly to get trading opportunities. In the worst case scenario you only need to check the chart every 4 hours.
Step 9: Enter trades using only M15 trade-friendly chart: When the price get to your desired areas on the higher time, enter your trades at the best discounts by using M15 on a trade-friendly chart. If you need further explanation read my previous post about creating a trade-friendly chart.
Step 10: Understanding the importance of 50 point level on RSI: 50 point level on RSI on your trade-friendly chart is usually an area where price normally stalls, changes direction or continues on any time frame. Study how price react at this point for a better understanding of price action.
Step 11: Set concrete zone on H4 chart: Price usually trade for most major currency pairs within 250-400 pips over a period of time within a concrete zone. The concrete zone is a good guide on where to place stop losses. For your short term trade, place stop losses slightly above the concrete zone for your sell and slightly below for your buy. Read my previous posts on concrete zone for better understanding of the concrete zones.
Step 12: Stop loss: Most traders recommend that you should not risk more than 2% of your account per trade. This is a fair recommendation, but I do not support tight stop loss. With my maximum recommended lot size/account ratio 2% account risk per trade on $1000 account size trading 0.01 lots is $20 i.e. 200 pips (If you trade the maximum you increase your exposure to 10%). The important thing about stop loss is money management, if your lot size is small you can afford to increase you stop loss settings and give your trades room to breathe. Read my views of stop loss in some of my earlier posts.
Step 13: Take profit at pre-determined level: Set your take profit at pre-determined points depending on your expected returns. If you are trading the weekly chart anything less than 200 pips is a waste of efforts. You should be aiming for 200 pips and above.