Exactly how conservative should I be as a beginning trader?

After giving up on messing with indicators and such I've started to trade based on support/resistance/fibs/trendlines/PA.

I generally only even look at a pair if it's well in a trend on the daily chart. Then I go down to 4 hour and check if it's trending the same direction there aswell (so I don't get caught in a correction on the 4hr chart). Then I draw lines and fib levels (usually on all charts, giving more weight to stronger support/resistance combining at a price level with various fibonacci retracements). Making sure there's no break of the trendline and then I wait for reversal PA signals to form near the trendline on the hourly chart, I only enter a trade if I can expect to earn twice as many pips as my stoploss assuming the price stops moving at the first major support/fib levels.

As you can see this is very conservative, I only try to enter (what I think are...) the best trades. Is this correct? Or should I lower my standards? If so, where could I start? I don't really mind not entering every possible trade, but I might only enter 2 trades average per week and this affects how long I need to trade before knowing if I am a profitable trader. Any suggestions would be appreciated.

In general you only wanna take the patterns that work out best. So being conservative is a good idea. Why? Cause it dramatically reduces your drawdown, thus the compounding effect can be exploited to a far greater level, than if you take substandard setups and get more into the red. E.g. a 50% drawdown requires you to make a 100% to just get back to break even, while when you only have a 20% drawdown you only need 25% to make it back to break even.

And finally a point I am always making in my posts: How do you KNOW these are good setups? Do you know the average win-loss ratio and RR ratio? Did you actually research these setups or just read them on the internet?
If you don't know the metrics of your setups, then I would not start to trade them, since it is very likely that they are not profitable in the long-term no matter how selective you are. First research them and then find out IF they are profitable at all over the long-term, then start trading only the researched patterns and leave out everything else.

Most of this was derived from various books. I just combined parts that made sense. I guess the suggestion to look over a chart from the last year and see if the setups were profitable is a very good one. I'll be sure to do that. I just have alot of confidence in this system and I figured I could find out if I truly am profitable by sufficient demo trading.

It sounds as though you have the right idea and what you are looking for is something called expectancy. Search for "expectancy forex".

Now you know what you are looking for, practise. On Mt4, F12 or the strategy tester are useful, combined with spreadsheets. There are also forex practise software packages and of course, demo accounts. How you calculate expectancy is up to you but it will take time and the live trade is 50 times more likely to go wrong than a paper or demo trade for reasons of psychology more than anything.

Good luck can be a curse in this profession so I wish you "hard work".

Yea, exactly. It is alot of hard work. I was hoping to avoid that, but deep down I know that I have to look over several years of charts manually (making sure I don't see the outcome before I've made a "decision") in order to come as close as possible to the statistics of real trading.

Atleast the "how" or mystical part is fixed, but time and time again I find out there is no such thing as a get rich quick scheme other then sheer massive luck such as winning a lottery. All the other methods are simple, but never easy. It always amounts to alot of hard work and this is why such a small amount of people make it, and why it continues to be profitable for those that do the work.

A good answer. It's interesting to me to see when and why a price moves so I enjoy the work. So that you don't waste time down a lot of blind alleys, I suggest you look carefully at posts like this:


http://www.forexfactory.com/showthread.php?t=56907 (Peter Crowns - not necessarily the method, which is good, but just how a real trader thinks)

http://www.forexfactory.com/showthread.php?t=230888 (price action)

http://www.forexfactory.com/showthread.php?t=2331 (price action - especially the first few pages)

http://www.forexfactory.com/showthre...97#post5587497 (if you can sort through his posts) This is also a lesson on which threads to avoid. I think there are more than a dozen good traders on these threads. Worth trying to find them.

I would also suggest that you look at the Forex factory front page, especially Red Impact news history and how it affected price. This can help to get you into longer trends.

Thanks man, I'll be sure to read those posts.

Been busy only analyzing a single setup (pinocchio's) without fibs/etc. Just determining R:R using support/resistance. Allows me to go through the chart quicker aswell as showing me what is neccisary and what is fluff. So far looking really good, although I really don't have enough of a sample yet to make any conclusions.

My idea of being conservative is always wait for confirmation of a reversal or correction, whenever a H4 candle close above the amount of risk taken, i shift s/l to b/e eg. my SL is 55pips, once candle close above 55pips, i lock in.

I'm very generous with SL at 50 to 80 pips. targeting at least 2x of that.

Last thing, don't trade with a stingy SL of even less than 30pips, market is volatile, weak traders like us are often stopped out before the market decides on a direction. H4 is the lowest TF that I trade in.

As always, being conservative is a good place to start with. And yes, being conservative can limit your exposure esp when your orders go south.

You're on the right lines. For example if you looked at cable on 31st October 2011 and 10th - 11th August 2011 you might have been looking closely this morning. Very important level.

Currently it seems to be slugging along (long period of ranging, although it did trend up in the beginning). Will you be looking to short when PA indicates a reversal? Or for long when it shows resistance has turned into support?

I'm currently only trading in established trends, and as it's in a rather weak uptrend I don't think I will be touching this pair at the moment.

Being "conservative" especially as it's being described here is very subjective and may give you a false sense of safety that really isn't there. What you actually described in your original post is complexity - you have several steps you use to identify your trade. That's different than being conservative. And the bigger problem is, you don't have any basis for the process you're using. By basis I'm not referring to things written in a book by a person who most likely doesn't really have substantial trading background but rather a solid Evidence Based expectation that a method will work... That was a lot of words!

The point is - I think there is a fundamental flaw in how you are approaching your "approach". It sound like you only gave Indicator based trading a very short time before abandoning it. That may or may not have been the right decision for you... A lot of it will depend on the factors surrounding the loss associated with the process. The loss could have had more to do with how much leverage you were using, trade frequency, etc. There are a lot of things that impact trading result and to abandon an approach after just a few weeks or even months very likely means you've not seen the real potential, or lack of potential in a system. This is why you (all traders) need to have a solid understanding of how to back-test and create a trade system. Randomly jumping from one concept to another will only help pay the broker's light bill, not yours. But you also need to understand the worth of a back-test. It's not there to show you how much you would have made - it will never happen going forward. It's there to show you how much you would have lost and how close a system would have come to wiping you out.

Learn how to properly back-test - even if it takes a couple of years - if you plan on trading a life-time what does that matter? At the end of the day you'll have a much better idea of how to determine what "conservative" really means - not what you think or hope it means.

A good place to start (not finish) is "Evidence Based Technical Analysis". Get it and read until it all makes sense, then launch yourself into testing and gain that valuable knowledge that will really help you understand how to proceed with real money in a very tough market. - John

Thanks alot for the reply.

I'm kinda late with replying, been very busy with Custos' suggestion to look at setups to see if my setups were profitable in the past.

You assumed that me giving up on technical indicators was due to loss or failure, this is not true. Most of my trades on demo have been profitable.

It became clear to me, however, that there are flaws with pure indicator-based trading. I still use MA's and Stoch because it makes things a bit more clear, especially when looking for a trend. What I mean is I have stopped trying to search for "If Price is here and MA says this and Stoch is crossing over then buy" type of systems.

Maybe my knowledge of just how badly luck can show skewed results has me changing my trading too fast without really giving it a good try. I've noticed that book getting suggested a few times before, I was planning on reading it but put it on the backburner because I pretty much have no clue of how to trade.

A new trader should be very careful about his trading. A small mistake can put him in great danger.

So much overthinking and over complication in this activity, i just dont get WHY !!

get a consistent chart reading skills and the entrys will come naturally and consistently all the time; just with this you are already on top of the market with
a positive R:R trade incoming.. Win more than you lose every single time and thats all you need (OMG IT CAN NOT BE THAT EASY) well yes it is !!

Beyond true chart price reading i only use 2 rules and have an EA to handle the trade after its running; i HATE to be in front of the screen all the time, even with a runing trade, i just dont care anymore, its boring as hell, and i prefer to spend my time doing something else, and guess what? the account always grow no matter how many times i withdraw $$ from it


READ the price and the traces it left in the chart.. ALL you need its right there!!

Simple = win (with the proper knowledge behind it of course)

Complicated = death by a 1000 cuts


Your choice =)

Beginner traders should trade very securely. If any negligence occurs in them, the investment may be damaged.