My trading strategy and life goal
I'm a person who take risks. I'm from Sweden, and immediately after secondary school I studied one year abroad at an Australian university, and finished my studies in Sweden, or almost. Because I just recently jumped off my Fourth year in economics, since I got hired as a FX Broker for a major brokerage Firm. I only have an essay to finish, which I can undertake early next year to get a bachelor in economics. However, I'm currently intending to quit my job as a broker(im working 60 hours a week now), and take a half part time job as an insurance agent which is not study related, and during the free hours study the Forex market to become a better FX trader. I've been trading currencies for the last 5 years. I first blew up my whole trading account. Subsequently, i got breakeven, and recently, i managed to get plus. My goal is to save money of my part time work, and start trading currencies when I've almost 15k USD, which I will have in 5 months time. However, since am taking such risks, quitting my job, am going to make sure that I really have the edge. This is my current knowledge of the FX market:
Major Tactic for intraday trading: Shape your trading style so that it harnesses certain market characteristics.
Market characteristics: The market is trending more often than not. Taking advantage of this fact: Only open position in the direction of the current short term trend, and preferably also medium term trend. Entries should be on OB/OS areas (upper lower Bollinger bands, RSI), and TP and SL should be binded to technical levels such as Support/resistance levels and Daily average range or when your system signals a new buy/sell position which sometimes result in stop hits and then reversals. If there are no such levels at comfortable distance, donít enter. In case of identifying reversals, one should only enter after there have been at least 3 touches of a channel border, and upon breaking a border, one should enter, and place stops within the channel. The probability of trend break increases as more channel borders have been touched, because the important level becomes a zone of attraction for stop hunting. Therefore, I will use double up 4 times in conjunction with this tactic. It is more likely that there will be a false break if there have only been a few touches of important resistance/support levels for a long period of time, and there have been no significant retracement along the trend yet, and upon nearing the important level where is a significant price movement with high volatility. Whereas long period of sideways price movements immediately before the break increases probability of break that follows through. Chances of reversals increases when important levels have been broken, the market is volatile, and medium term trend in favor of the reversal, and an increasing daily range.
In terms of scalping and identifying reversals, one should Sell/Buy at upper and lower Bollinger bands, and RSI over 70, and only enter when there have been a major price move, which will decrease volatility because of exhaustion, which will increase the probability of no major price moves in the opposite direction. This tactic should be made on non volatile hours, such as asian session. And as time becomes shorter till the end of the trading day, the less likely is it that there will be a change in price direction.
Trending occurs when the market is volatile (look for active sessions such as the European session), and identify trends by drawing support/resistance lines,MACD, SMA. In case of avoiding reversals, one should be wary that it takes time for trend change. Usually preceding trend change, the market trades narrowly, moving sideways, market hesitation and losing volatility. This fact is good for TP when riding a trend, or looking for reversals to enter, preferably in conjunction with the channel border hit tactic.
Not trading during news hours.. It is important to have rules, and have a plan before you enter the trade, but being able to adapt TP and SL to the current market. Indicators are generally lagging, which is the reason why I focus on price action.
I will try to get more edge, by reading 4 of the best books on the subject(already chosen 4). Going through the most popular trade journals on this site,to find other profitable strategies and get inspired. Look in the thread where people vote for best members, and then reading their post history. And putting some major research on historical price data, in order to find patterns, such as average price movements of a trend, average reversal and so on. After all these data, I will try to formulate a strategy, that I will backtest.
So what do you guys say?
You seem to have done your homework!
Trade your system on a demo account and see if you can double it. If you can, then go for live.
A good way to trade breakouts is on retracements. Look at hourly and 15 minute charts for shorter term retracements, and 4 hour and daily charts for much longer term retracements.
Note: in one long four hour breakout, there can possibly be an hourly and 15 minute retracement, so you can ride the 4 hour until it runs out of steam, trading on hourly and 15 minute retracements.
Overbought and oversold are a little tricky in trending markets, as oscillators are primarily used in ranging markets.
I think you have a good solid system, test it out before you risk your hard earned money, and don't quit your job until you are regular and successful in forex.
Hope this helps,
Well, this was not my whole trading plan. I think it is far from finished. These were just some general ideas. Im also looking into what kind of money management would suit my trading style best. I can really see some potential in averaging tecniques, where you add positions, where you will make a profit if the currency retraces along just once. However, yet again, one would make sure that there is no great volatility present, where one method is to look at if there have been any recent price chagnes of magnitute, so that the currency is exhausted.
I was looking at the macd divergence indicator, and it seems a bit too far fetched and tecnical.
I think fibonachi can be useful though
Your trading plan sounds ok, what are your results so far like ? Whats the money management plan like as well ? What %Risk are you going for (Assuming you are going for a %risk style) Your way overcomplicating things though by the sound of it, but everyone to his own.
I think you are way undercapitalised for going pro with 15kUSD, if Sweden is anyway near what Ireland is that's nothing and you would need around 200-300k to trade for a living comfortably and probably a years living expenses saved up also. I don't mean to be a downer here but I am merely being realistic. When people plan out becoming a pro trader they always seem to forget tax / losing months / losing streaks.
If you are still going to have a part time job that guarantees that the bills will be paid then you will be ok and disregard what I said above.
What monthly returns are you actually expecting to achieve ?
Money management and having key exit strategies will be your success. If you have those two down....even winning 20% of the time can earn you huge returns. Let me add this also.....most traders believe that they have this down........only to learn that the market says they don't.
Money management comes first! remember, preserving capital is more important than making more money. Test your system out for 3-6 months and see if u are profitable. You seem to know what you are doing. I wish you the best.
My trading plan so far:
How to identify trends Trends: SMA(lined up in order), trend lines, channel/support/resistance breakout, Candles(identifying reversals), MACD 4 hour stragey
How to identify Over sold Overbought: Bollinger bands, price distance to the trendling(increasing chances of correction),Candles
How to identify volatility: Candles,MACD,RSI, any recent price movement(exhaustion), my own indicator, important levels where stop loss becomes zone of attraction, average daily range for the pair.
Other decision which comes from experience/read:, such as: chances of a false break when there havnt been any retracements along the trend yet. Higher chance of a break if there have been at least 3 channel touches, and so on.
I've 4 more books to read, and I'vnt even started reading all the journals,and post history of experienced traders, to get more inspired and add things to my list on how to identiy volatility, trends.
When i will also look at historical data for my currency pair, and calculate average trend movement in pips, and other probabilities and so on.
When i'm finished im trying to figure out a way to implement all this theory into practise. My general goal is to look for high probability trades which corresponds to many of these positive signs.
My general idea is to only range trading, only entering at medium term trend, and having stop loss,TP and entry decided when my system indicates an upward/downward trend. For instance, if my system signals a positive trend, i might not enter a short rangetrading position, to avoid a loss. However, im still researching this a bit more, if i should trend and rangetrade, or only rangetrade and use my knowledge about when a trend will hapen in my range trading style.
At most, i can save up 50k in about 1-2 years time.
I have a question for you, or for anyone who is / has been a forex dealer.
If you can see all of your customers orders and positions, does it help to be able to feel the market sentiment ?? i.e.. If a good and profitable customer is buying Euro, does it help in making a decision to buy Euro yourself ??
Don't know if I'm being clear, so I'll continue:
If I was seriously considering buying Euro, and then I saw a profitable customer buying Euro long and strong, that might just be the extra confirmation I needed to pull the trigger.
In fact, if a forex dealer has a well-known very profitable customer..... couldn't they just about copy his trades ??
My Guess is...
...if u've got a good mix of trading strategies (tech n fundamental) and ur instincts are good to go, then sure thing, then probably u should give it a try. For me I'll scalp behind the big spender cuz I still wanna learn before I hit it BIG!!!
You say risk will be "normal during trending markets" and "averaging down during range trading" the problem here is seeing there conditions occuring, a lot of the time it's too late. But I digress.
But the main point here is to start demoing it, you have ideas of going pro and you have not even tried the system yet ? You are getting way ahead of yourself.
Everything works when you look at stuff that has already happened, unfortunately our brokers do not take orders on history.
Then again you have to look at -
Losing months / weeks
Losing streaks where you have drawdown
They all will happen sooner or later
(Before anyone jumps on me here for being realistic, I am well aware of people practically ransoming the market for money, however, when a person is aiming for such high %returns the chances of large drawdowns occuring is way higher)
If I were you I would stay working a normal job, then at night you can come home and trade the Daily timeframe across a large number of pairs, get some consistent returns there for a few years, you could be saving on the side, compounding these savings - whilst also creating some results so you could potentially trade other peoples money.
Again that's just my opinion, but I really want to give you some quality and down to earth advice
I would do a lot of validation to be sure I wouldn't chicken with my rules at the rough moments - forex tester is a good tool if you don't have programming experience.
Well my plan is to go pro when having 15k, and when work during saturday and sunday, and live for free at my parents apartment, and thus having such low expenses that i my work during holiy brings enough income.
I have no intention of withdrawing any money from my forex account, any time soon
how to beat the odds in forex (he is a pro who generates good results,reviews on amazon were positive)
forex bootcamp (4.5 stars on amazon, amazing reviews, though a bit on the amateursih)
forex pattern and probabilities (pro who generate good results,4.5 star on amazon, amazing reveiws, a bit on the amateursih)
Candle sticks by steve nilson (the best book on candlesticks, and candlesticks are useful/, as they are good methods for identifying reversals and so on).
Tecnical analysis to the currency market (basic tecnicals, however, a good introduction to tecnical analysis, which will help understanding other books).
All above mentioned book, will give you a general idea of how
tecnical analysis and trading to the currency market is done, except for candlesticks which i think is more of an advanced book. To get more advanced knowledge, i will read lots of journals here of other strategies and other expert traders posts.
The key thing is to not blindly listen to a strategy,someones post..i will only value something valuable if i truly understand it, and find it logical that it will increase probabilities.
For instance, the statement: 3 channel hits increase probability of channel breakout. I find this very logical, as the channel becomes a zone of attraction. Or, that currencies tend to trend, therefore it is logical to always go with the trend. I found booth of these rules as ways to increase odds, when i find a logical reason why it increases odds.
All factors i take into account in my system has to have a logical reasoning of why it increases odds. My goal is to have a large list of things that will increase probability, after all my research. However, there will be so many rules, that i wont get a single trade if all signals are green, rather i have to make a discretionary judgment to some extent, and therefore,this strategy can't be mechanized 100%, only partially. I will have rules, but some discretionary analysis has to be made as well.
I only find it logical to map out "all" factors that increase odds, and have them simply lined up on a paper, memorizing them, and then have them as a reference and then make discretionary judgment, at least in the beginning, and then i get more experienced i will know what combinations, how many factors necessary and so on for a high probability trade and so on.'
I might sound a bit ambitious, however, i truly believe this is the way. You cant forecast prices,you can only increases odds in your favor.Thats why you should implement rules that increase odds. I think that sounds logical? And a good way to that, would be to do some extensive research on all things that increase odds. However, of course, its not that easy in practise. I mean, for instance, some vague factors, such a certain candlestick, such as hanging man, which indicates that there will be a reversal. But does it really increase odds? I think there is a lack of logical reasoning when only looking at the hanging man that this would indicate price reversal. I would have to research it and see if it really increases odds, maybe looking at old historical data and see if there is a higher chance of reversal. Because if i dont do this, my system will have vague factors that are faulty. I think this is a bit complicated. However it is a future problem, as I'vnt finalized my system,starting to stack up factors, or backtesting yet.
A rough guess is that my research will take about 300-500 hours. I will do this within 3 months, and im currently doing 20-40 hours a week. Forex is a competition. Only a hand few are winners and if you are going to be a pro, you really have to have an edge. I thnink this might give me an edge.
- Market wizards (both)
- Reminescences of a stock operator (old but one of the best I have read)
- The ultimate trading guide (I always recommend this, IMHO one of the best technical books)
ps. you have a very tight schedule if you haven't traded for a long time before - the problem with studying books etc in this business is that the truth rarely is there (with exception of few books - I listed few above) and most of the books are fluff written to make author money.
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