Trading: As simple as possible, but no simpler - by a real Cityboy

Okay hello Forexfactory members. Thank you for taking the time to check out my trading discussion.


This discussion will revolve around a pretty simple concept –

The only thing you need to do to profit from the markets is buy when it goes up, sell when it goes down.


Easier said than done? That is up to you. The concept is simple, but the devil is in the details.
I’m going to discuss how I apply this concept to consistently profit from the markets. You can find my trading journal through my sig. to see my recent trades, and I’m going to try and keep a log here as well. Hopefully my words will be enough to demonstrate that I do know what I’m talking about, but maybe my trades will help with the faith.


Anyway, read at your leisure – I believe that this could provide a fresh look at the market and might help those who are struggling to see things a little clearer.


What you will find here:
- A little about my background and why my words are worth a read
- An overview of my trading method
- Some gems of knowledge that I have acquired over my years in the industry
- A continuing discussion on simple trend trading including my live trades



Before we get too far – a disclaimer. I make 4-6% per month. Not enough for you? Well it works for me. Am I looking to increase this? Of course. I am not a guru. I am not an ‘expert’. But I am a trader who takes money from the market. These foundations will serve you well.
To be honest – I am actually looking for feedback from some of the veterans here. I am a little self-conscious about my trading. I hear stories of people pulling 20%+ months and I want to get there. I’d love to hear feedbacks, criticisms (constructive please! Lol) and where I can improve.

[Some thanks to forex factory members who I believe have helped improve my trading. The majority of these members, I have not spoken with directly – but reading their posts has given me fresh perspective and ideas to add upon my on-going education.]


Chicky – Number one. By far, the member I have learnt the most from. I believe his ‘lessons learned’ thread is a ‘must read’ for any aspiring trader. Although, I’m assuming that if any absolute beginners read it – or a trader who has not yet been burned – they will not understand the thread properly. If you’ve been struggling for a while, matured as a trader and are striving to increase your understanding – that thread is golden. Chicky – If you read this, you’ve helped me more than you’ll ever know and I want to buy you a beer.


The gang over at James16’s Chart thread – James, Jarroo, Mike, Pinbar, Phanti, Meshka. All very helpful and insightful. After reading this thread, charts became like reading a book with an obvious ending (or next chapter at least).


The SonicR leaders – Sonicdeejay and Traderathome. This thread has a lot of noise, but the lessons on Elliot waves combined with volume confirming trends are very powerful.


Alongside my mentors at my work and in my personal life – these forum members all have lessons to teach and you can benefit a lot from reading and applying their experience.

I’m 25 years old (almost 26) and have worked in finance for 4 years. I started my career at HSBC Bank, where I was a salesperson on the fixed interest side. I pitched ideas to clients and basically ensured that they were happy to allow my bank to play with their money. This was my first exposure to trading. During my training in Canary Warf, I witnessed spot FX deals, which were basically phone calls like speaking in code, whilst the dealer sat infront of 6 monitors. “Eurodollar 1.xxxx – Yours” done.


That was it. I was hooked. Although my mediocre education (average degree in sports therapy) would keep me from FX Dealing in the City – I set about my mission to learn this lucrative art.


I left HSBC and joined a private finance company where I took on the role of Private Client wealth management. A big jump in the career ladder and it now meant that my day to day activity was discussing investment ideas and keeping my ear to the ground across all markets. It was around this time that I started trading my own accounts – spread betting stocks, futures, fixed int, currency and commodities. Results were mixed – and although I’ve avoided any major losses so far – I did put my trading on hold after suffering drawdown of about 30% after my first few months.


After that, I focussed on myself, my method and how the markets work. I found my edge and learnt how to apply it consistently. I believe that the most important aspect of this is the understanding of how the market works. This is more than just knowing how buyers/sellers/central banks move the price around – It is about how the behaviour of the market can dictate direction and where you can find trading opportunities.


I feel that since I have seen first-hand how the markets are moved – I know how we can identify higher probability trades.


After the realisation that becoming a competent trader is all about an edge and an attitude – the markets have been more kind.
This thread will go over how I came to this point of understanding, and how I developed a trading method that has allowed me to generate consistent profits for the last couple of years.

This is where we will get down to business. This stuff, when taken with an open mind, may provide a key to a lock that is holding back your trading performance.

No one KNOWS where the market will go. It is impossible to know the next tick, the next bar, the next day of price action. The market is unpredictable (but not random). All the indicators and systems in the world are just tools and they will not tell you where the market is going.

I was not there – but I have been told by very wealthy ex-traders, that in the 80’s – the traders on the floor did not use charts. They just had the current price on the monitors – with yesterday’s open, high, low and close prices noted on the back of their cigarette packets.

Trading is developing an ‘edge’ that will be right more times than it will be wrong – apply it consistently over time – with a balanced risk/reward.
I believe I first read this in ‘Trading in the Zone’. All you need to do, is buy when it goes up and sell when it goes down.
THE KEY IS IN THE MONEY MANAGEMENT. LET YOUR PROFITS RUN, CUT YOUR LOSSES SHORT.

I will talk about this more in a future post – but for now, a great tool for learning this – is to learn how to be profitable on this game online.
http://games.yousaytoo.com/mannon/forex-online-game-19512
It is a little buggy – and I wouldn’t recommend clicking on any links on that page – but give it a go. I actually saw this on Forexfactory but can’t remember which thread it was in. I found this really helpful in understanding that you do not need price history to learn how to collect profits from the market.
Learn how to play (and win) this – then think about how this works in the live markets. Of course, you can’t short sell and it moves waaay faster – but the concept is the same.

I’ve shown this to friends, and then let them loose trading micro lots on my account - 1min, 5min, 15min charts. It was surprising how well they could pick it up going live. It was observing this that I realised that trading can be very simple and more often than not, we make it more difficult for ourselves.

Anyway, I need some lunch so I’ll continue this later.

Nice read, subscribed!

Subscribed

Subscribed. Siple is best. I'm interested to see what you have to say.

Thank you Pjotter and FerruFx - The encouragement is more than welcome.


Going back to that link for the game I posted earlier - That will link nicely in to my next post. Continuing along the theme of "The markets are unpredictable, but we can still make money from them" - I just replied to another thread which was very much on topic - So I feel that it would be helpful here.

[The question is: "Are the markets random or not"]

Going back to the initial discussion point of this thread - My very humble oppinion would be this:

No. The markets are not random.

They are however, unpredictable. I'm not going to get bogged down in the semantics - but there is a difference.

Pull up a daily chart of EUR/NZD - show it to a child and say 'is the line going up or down?'. That will give you a clear bias and (at this point in time) would give the market direction aka. not random. There are times when the market is 'more predicatble' than others, and those are the times to trade.

It has been said already in this thread - and really, this is all there is to it in trading:

Use a system with an edge (what tells you when the market is currently more predictable) - and apply it with precision - with equal risk/reward (just use 1:1 if you dont have your own criteria) - over time you'll see results. If your edge is correct, your results will not be 'random'.

There we go. Done. Your holy grail. There are so many systems out there that provide an edge. If we had someone looking over our shoulder and slapping us everytime we deviated from the system, it would be easier - but I doubt most of us do.

Another point worth noting is that we shouldn't care too much about entries - because profit is realised when you close the trade. THAT is where you should focus most of your efforts.

I'm not a pro trader - But I do work in the industry. Technically I am an adviser on investments. The traders work on the floor above me - and perhaps a little enlightenment here:

When new traders join, they have a 1 month induction course - in the first week, they sit with experienced traders - and they both open the same positions. 9 times out of 10, the experienced traders close their positions for a net profit at the end of the day - 9 times out of 10, the rookies close them for a loss (or less of a profit).

If you can understand that - you realise that it doesn't matter so much as to weather the market is random or not. This is what makes this business so appealing, exciting and enjoyable to some - and also stressful and impossible to others.

It's all in the way you see it. Free your mind neo.

Regards,

LD

I was going to wait a little while before getting in to actual trading because if I just start throwing charts out there - the whole essence of what I'm trying to present may be lost.

So anyhow, I'm going to put up a few pictures of what my charts look like.

Simplicity really is the key here. I work off three main trading 'strategies'. One of which is just for daily charts - another I use for 4h charts - and the third and final can work on any timeframe depending on the instrument you are trading.

Personally - I only trade live on Daily and 4h - however I have had reasonable success trading lower (down to 1m on indices) on demo. Main reason being that I work during the best trading hours... other reasons being that it gives me a headache looking at charts too much!

The first chart I will post is of my dailies - nice and clean with a 200ema. Like this, I can see where the momentum is going in the markets. I think this is the AUDUSD. Now for the last 200ish bars - we are not seeing any direction over the long term -but this isnt important for us - over the last 30 days we have been going UP - so right now I'm looking for longs.

I read on this forum a long time ago, that if you trade in the direction of the trend and your stop is reasonably placed (based on ATR) - Your entry does not need to be perfect because the market will help you out.

Although it turned out that this was typed by a scam artist (Jacko) I do believe that this has an element of truth. On this next chart I highlight where we have momentum and a clear trend.

This chart is the daily - when we see these areas - we can look to lower timeframes to find an entry

Generic 'Moving average fan' strategy.

Once i've spotted a clean trend with momentum on the daily chart - I look to the 4h - drop on my moving average lines - and use the stock moving average strategy.

In these clean trends - I look to jump in on the trend by buying/selling on the touch of the fastest MA. We want our MA's to be in a row (slow - med - fast) - In the direction of the trend.

What is really important is to consider price action waves. I'm going to prepare my next post about waves (I believe the technical term is Elliot Waves - although getting caught in the technicals isn't so important)

In this particular chart (EURNZD 4h) The market is in an amazing downtrend - so I'm shorting every touch of the fast ma (green line).

You can see from the process of breaking down where we have a nice clean trend on the daily - we are going to get a market that looks like this on the 4h chart. These provide lots of entry opportunities, some losses - but more winners.

This type of trading is purely pattern recognition - which is a trader's best friend. Look how simple this is.

We are not saying exactly where the market will go - but we have an idea where it looks like it will go. We have an EDGE.

Carrying on with my trading ideas -

I'm going to talk a little about price action waves. I find that having a good understanding on price action waves is absolutely key to following a trend following strategy.

I'm going to attach an example which will mark points on a line identifying the key points to look for on a price chart.

This will be nothing new to the pros - but keeping the concept in mind is going to help anyone looking to jump in on a trend.

Uptrend =
Low -> High -> Higher low -> Higher high Look for long trades.

Downtrend =

High -> Low -> Lower high -> Lower low Look for short trades.

I only trade in the direction of the trend ON THE DAILY CHART. I find this to make things so easy and clear. If things are messy on the daily then I'll find something else to trade.

So look at the downtrend in this chart. With price making LOWER HIGHS and LOWER LOWS like this, we are just looking for an opportunity to get in short (preferebly as close to a lower high as possible).

In this type of market where I am looking for SHORT trades, I set sell orders below the lows of daily bars with bearish price action (High tests, hanging man, Bearish outside/inside bar ect).

Stops go above the previous LOWER HIGH. Because if price goes above this point - we are no longer in a downtrend. Bias will be flipped and we start to look for longs.

Once the trade gets to about 50 points - or 1.5% ATR (depending on the instrument) I begin to trail the stop at the 2day high or low (depending on long or short.)

Obviously this strategy will produce a losing trade every now and again - but once you get in on a trend, you will capture a ton of points which will make up for small losses during ranging periods.


Chart to follow:

I was freaked out at your posts when I read them the other day because I had the same "AHA" moment just a few hours prior. I felt like I was reading my own mind. I said to myself...damn man! I gotta let him know we're on the same page!! hahaha...anyways...great thread man. I definitely
agree with your method of trading since I too believe simplicity is key--otherwise, how else would have all the old timers made so much money in the markets? I'm convinced its all about exits, psychology, and money management


I have been working for the past few months to design a trading method which suits my personality and my own beliefs about the market. After losing a few hundred bucks on a live account using various methods and realizing what works and what doesn't work for me I have figured out that swing trading on the daily charts works best for my personal makeup. After reading numerous threads and books regarding system development and the "right" way to trade I have determined that there are 1000's of ways to make money in the market and it's really all in the eyes of the beholder when trying to figure out which system works best for you. The common themes I have read about in all great traders is their ability to trade with the trend while cutting their losses short and letting their profits run. Although it sounds simple and was redundant to me at the beginning of my journey a year ago when I first started learning about the markets I am starting to realize that simplicity is key, price action is number 1, and we can define critical price action points through entries of highs and lows with the trend. (I.E. 2 day high/low)

Now, since we can define a trend just by taking a quick glance at the daily and weekly charts and we've established entry points now its just a question of exits, psychology, and money management.

I've found that Larry Williams' Long term secrets to short term trading was informative not only because his definition of the overall market structure which a trader can use to identify the trend but also because of his philosophy on the relationships that exist between price, time, and volatility (large range days and low range days)

Currently, I've designed my exits based on time (I.E. exits 5 days after the open) and the manual backtesting ive done on Forex Tester and via hand shows promising results over 5-10 year periods on different pairs. I have a trend filter based on the DIBS concept stated by peter crowns that weeds me out of trades that go against the trend.

I haven't been able to read all of your posts but what kind of money management schemes do you use? Do you pyramid? ( I have been considering doing this but I don't think its very practical on a short-term time frame). Also, which exits do you prefer? Stop setting?

I usually set my stops based on the 4-20 day ATR.

Based on my own testing time works very well. I've estimated that the distance from a high - to - high on the daily charts in a bullish movement on the Eur/USD for exmaple could be an average about 40 pips so if we incorporated that into a time based stop that might be able to give us an accurate measure of how many pips we should be able to take from the market.

I just started trading this method live this week so I will post these trades along with you too if you like.

Happy trading to all~

Hey Dpen,

thanks for your comments - I'm going to write a propper responce tomorrow. Been crazy busy these last few days. I did write a full reply earlier then accidently hit 'back' on the browser...lost it all and ragequit.
Anyhow - Tomorrow I'll get back to you. Some good points that link in to what I want to talk about next.

'Method' vs 'System' and Money Management 101

Right Dpen,

Time for the full reply.

Reading through your post, it sounds like we have a very similar mindset and approach to trading. I believe that once you get an understanding of trading daily swings, it provides a great platform to build upon. It's like adding strings to your bow... or whatever the saying is.

Your daily swings will provide a stable revenue for your trading account, then you can start to build in other strategies that you resonate with.

I use the daily charts for 90% of my live trading - but on my demo I'm starting to work in 4h, 15min and even 1m trading strategies and having a lot of fun.

Where you typed:
"After reading numerous threads and books regarding system development and the "right" way to trade I have determined that there are 1000's of ways to make money in the market and it's really all in the eyes of the beholder when trying to figure out which system works best for you. The common themes I have read about in all great traders is their ability to trade with the trend while cutting their losses short and letting their profits run."

That is basically all you need to know. Keep that in mind and you are well on the way.

I have not read anything by Larry Williams although it does look very interesting and I'm going to put it on the list.

I like the idea of defining exits on time. I don't have much experience trading Options but I am aware this is how they do it. This totally removes any kind of human interference on the exit. Probably the weakest part of my trading is cutting profits too short.

At the moment I just use the two day bar high/low as my trailing stop and it seems to do a job of capturing a movement. The main reason for the 2 day trail is because I dont get to manage my trades during the day. If I could be at my own computer during market hours I'd look to manage on a little more of a discretional basis.

In short - Trailing stop of the two day bar high for short trades - two day bar low for long trades.

Typically I only pyramid my trades if I see a reason to open a trade independent of my initial position. This tends to happen when a position has started to move in the right direction and has offered another opportunity to get in on a retracement. I'll put up an example chart below.

You are more than welcome to post your trades - I'd like to see how your stops and exits work on the charts - Sounds good.

Anyhow - attached is a chart showing an example of building positions in to a move.

Regards,

LD

Great setup!

Just figured out how to use the trade explorer.... wow...

Okay so I've seen a trade setup on an instrument I do not normally trade. AUDCHF.


So, going along with my trading method - We've got the nice bullish price action waves - a pullback, with a nice low test bar as an opportunity to get in long.


I've got a video going over my entry and what we like/dislike about the trade.


NB. I normally enter on breakouts of bearish bars in an uptrend - but this price action is confirming of bullish momentum. A low test bar is nice to see. So I'm happy to set an entry here.

One concern about the trade is that the trend is long established and we may be late to the party - but hey, we are happy with the risk.


Regards,

LD.

http://youtu.be/1MYxY1tW0jo

I've had a question on my trading blog about entires - I made a quick video reply that I think is worth checking out for an example of a walkthrough trade entry.

Cheers all,

https://www.youtube.com/watch?v=YzxaIiEkZBo