Just thought I start a thread to share something quite close to my heart which I think might be useful to all day traders.
There's a myriad of EA / indicators that claims to help you trade profitably. While most of these disclaim being the holy grail of profitable trading, they mostly fail at a very alarming rate in real life. The reason why EAs almost certainly fail in real life is they do not apply human judgement and intuition when they get triggered. And all strategies are worthless if not applied in tandem with a dose of good judgement.
There are 2 factors which I feel come into play when human judgement is concerned - Timing and having a sense of the market's mood.
1. As in everything in life - timing is everything. For each currency, there is a market or two which impacts it's movement significantly, and trading outside of this / these market's "business" hours is just asking for grieve. Just because FX is a 24 hour market and that you can trade FX anytime you like, doesn't mean you should. Also, one should also take note of the lunch / tea break hours in these markets, as anything buy / sell signals before / during these times should always be treated with suspicion. Also timing your trades around major economic news releases can save you from a lot of grief. The problem with news is that a lot of times even when you are right, you can end up being wrong in the end ** I'll elaborate on this a little in the footnote.
2. Figuring out the market mood - like some say trend is your friend. Even within a trading range, there are times when prices edge up, then there are times when it edges down. That's why I like to look at 5 secs chart, to see what is the mood you just scroll back to look at what has transpired in the past 1 hour or so.
We have to understand that the market moves in whatever direction it has chosen by default in the absence of any other triggers. Sometimes even without any triggers, prices can suddenly shift or even change directions. We have to remember, it is the collective buy / sell , limit orders / stop losses that affect the prices, and in the very short time frames - anything less than 15 min - price movements looks very random. Prices moves up or down for apparently no rhyme or reason. But the key word here is - COLLECTIVE. Sometimes one big trade by some random individual could tip the balance enough to change the price directions, but other times its nothing more than a momentary blip and prices continues in its original direction. Good judgement is required to separate which is which.
Good judgement is also required to understand during opening hours, what those thousands of hedge fund, professional traders do in the course of the day. They also have their tea / smoke breaks and lunch breaks. Any buy / sell signals during such times should be eyed with suspicion, and treated as a potential whipsaw unless proven over the course of time - how long is up to your judgement.
Finally - as a personal trading rule - I never trade 5 mins and up to 30 mins after a major news releases. While the temptation of 50 - 120 pips can seems great, it's almost impossible to win them. Also, for the few mins after news releases, the market is still figuring out what to do with the news. In the end, the price movement could well be opposite of what the news says it should. In many instances, prices moves both ways and even if you were right / wrong initially, the prices moves back to make your position wrong / right eventually.
So I will always ask and pray for this one thing at the start of every trading day - good judgement. Like in everything worth achieving in life - there is just no shortcut and no cheat codes.
*** I have done my own version of mythbustering on demo accounts, hedging my bets before new releases so that regardless of which way news releases may move prices, one of them should make money and the other one would get stopped out at an acceptable loss. The result has been quite discouraging with some of the news resulting in losses in both sides, most of them cancel each other out with a small loss, and on rare lucky ones I come out with a small win. Please take my word for it, the odds are against you no matter which side you take.
There's a myriad of EA / indicators that claims to help you trade profitably. While most of these disclaim being the holy grail of profitable trading, they mostly fail at a very alarming rate in real life. The reason why EAs almost certainly fail in real life is they do not apply human judgement and intuition when they get triggered. And all strategies are worthless if not applied in tandem with a dose of good judgement.
There are 2 factors which I feel come into play when human judgement is concerned - Timing and having a sense of the market's mood.
1. As in everything in life - timing is everything. For each currency, there is a market or two which impacts it's movement significantly, and trading outside of this / these market's "business" hours is just asking for grieve. Just because FX is a 24 hour market and that you can trade FX anytime you like, doesn't mean you should. Also, one should also take note of the lunch / tea break hours in these markets, as anything buy / sell signals before / during these times should always be treated with suspicion. Also timing your trades around major economic news releases can save you from a lot of grief. The problem with news is that a lot of times even when you are right, you can end up being wrong in the end ** I'll elaborate on this a little in the footnote.
2. Figuring out the market mood - like some say trend is your friend. Even within a trading range, there are times when prices edge up, then there are times when it edges down. That's why I like to look at 5 secs chart, to see what is the mood you just scroll back to look at what has transpired in the past 1 hour or so.
We have to understand that the market moves in whatever direction it has chosen by default in the absence of any other triggers. Sometimes even without any triggers, prices can suddenly shift or even change directions. We have to remember, it is the collective buy / sell , limit orders / stop losses that affect the prices, and in the very short time frames - anything less than 15 min - price movements looks very random. Prices moves up or down for apparently no rhyme or reason. But the key word here is - COLLECTIVE. Sometimes one big trade by some random individual could tip the balance enough to change the price directions, but other times its nothing more than a momentary blip and prices continues in its original direction. Good judgement is required to separate which is which.
Good judgement is also required to understand during opening hours, what those thousands of hedge fund, professional traders do in the course of the day. They also have their tea / smoke breaks and lunch breaks. Any buy / sell signals during such times should be eyed with suspicion, and treated as a potential whipsaw unless proven over the course of time - how long is up to your judgement.
Finally - as a personal trading rule - I never trade 5 mins and up to 30 mins after a major news releases. While the temptation of 50 - 120 pips can seems great, it's almost impossible to win them. Also, for the few mins after news releases, the market is still figuring out what to do with the news. In the end, the price movement could well be opposite of what the news says it should. In many instances, prices moves both ways and even if you were right / wrong initially, the prices moves back to make your position wrong / right eventually.
So I will always ask and pray for this one thing at the start of every trading day - good judgement. Like in everything worth achieving in life - there is just no shortcut and no cheat codes.
*** I have done my own version of mythbustering on demo accounts, hedging my bets before new releases so that regardless of which way news releases may move prices, one of them should make money and the other one would get stopped out at an acceptable loss. The result has been quite discouraging with some of the news resulting in losses in both sides, most of them cancel each other out with a small loss, and on rare lucky ones I come out with a small win. Please take my word for it, the odds are against you no matter which side you take.