Basic of the basics

I realized some traders after learning some basics from babypips, still do not know how to trade the basic because the internet doesn't show you the reality of the market movement, as internet always show you the perfect scenario where this is not the case. I will just show some simple examples of how you can make use of the available data to form a basic trading plan, without using any profound mathematical terms or statistical knowledge. I will start with support and resistance.

Support/Resistance

To make things easier and save some time, I will take some examples from trading the support.
1. Draw some lines at bottoms (Decide yourself if you want support at candle close or low, be decisive as you will follow it in your trading plan, if not use a line chart)
2. Check how many bounces off the support
3. Check how many breakout thru the support
4. Check what is the lowest number of pips to the top
5. Check what is the highest number of pips to the top

Ok, let's do the maths in this 5 min live chart.
1. Breakout thru support == 3
2. Bounce off the support == 1
3. Pips gain from breakout >>>
a) 1.0959-1.0949 == 10 pips
b) 1.0957-1.0925 == 32 pips
c) 1.0949-1.0925 == 24 pips
4. Pips gain from bounce off >>>
a) 1.0980-1.0957 == 23 pips

So here come your data collection of a simple trading system.
1. Percentage of trading bounce off in this X timeframe == 25%
2. Percentage of trading breakout in this X timeframe == 75%

Let's assume we are going to trade according to the 75% winning rate system, but we need to decide our TP and SL. So lets look at the possible loss and win we can make.
1. Gains from break are 10, 32 and 24 pips. Let's be conservative. We will take 10 pips as take profit, because it shown that 10 pips are sure hit out of the data we collected.
2. Loss from bounce are 23 pips. Let's be conservative again. We will take 10 pips as stop loss.
So according to this examples, we will have the following results.
3 trades of hitting 10 pips TP == 30 pips profit
1 trade that move 23 pips == 10 pips loss
Result == Net 20 pips profit
Winning Rate == 75%
If you have a higher risk tolerance, you can set 25 pips SL, and you have a better result as it reverse after moving 23 pips and give you a breakeven or a profit.

The above is just an example. The more data you collect, the more specific and detail your collections and research, you will have more confidence in your trading plan. There's also spread to consider, news events, etc to consider and enhance your trading system.

If you are only a part time trader or you only have time for some time frame, then collect the data from xx:00 to yy:00 time, so you know what you can expect from your trading availability.

Good luck.

Very Nice analyses you have done. It would be helpful to the traders who wish to trade successfully.

Hello to you!

Thanks a lot for such interesting detailed work. I surely will try to implement it. I believe it is especially useful for new traders.

What about the basics of how the global economy works, bond markets, what makes currency prices go up and down, especially in this era of zero interest rates. I'm having a hard time getting a handle on it, coming from a commodities background. Can anyone recommend a resource to educate myself with?

Hi Bro,

Maybe you can start from reading Macroeconomics materials or do a search on FF and Google, and find one that you can simply absorb and understand. Below is a quick search.
http://www.forexfactory.com/showthread.php?t=508300
I personally read The Secrets of Economics Indicators by Bernard Baumohl and Economic Forecasting and Policy by Nicolas Carnot, Vincent Koen and Bruno Tissot. These 2 books are easy to understand for a person who doesn't know study Economics like me.

I don't touch on Bonds, so can't help you on that.

What makes the currency move are Order Flow and Demand/Supply. You can try to research more on these, as well as Market Structure. There quite a number of FF members discussing these.

Care to share more about your commodities knowledge to us since you came from that background? I had some ebooks which I sent some people thru skype, but usually I don't see anyone really complete reading it as most hate going thru lot of time reading everything. The most frequent books people finish reading are usually Market Wizards. So I think you should start off a little search thru your preference.

Thanks for the tips kinspk, I will add those to my reading list. Reading Jim Rickard's books right now. When I traded commodities, it was mostly the metals, which I felt I sorta understood. The other markets I left alone. Michael Maloney's book on Gold and Silver is probably the best one there is. Although he focuses on buying and holding physical metals, the principals can be translated to any market that is trading metals.

tnx kinspk
i use support and resistance line and good work for me but my problem is put stop loss and very late get in to market ?
my problem is very late go to position or vey quick !!!!!!
tnx

Bro, hope I understand your question correctly. Above is just a basic backbone to start off, you can add on other factors to improve your probability of your trades.

Your SL can be base on your risk tolerance (the amount of money you willing to lose per trade), Your SL can also base on statistics collected just as above example of how often it will hit or not hit before reaching your take profit. It will be base on your own personal preference.

I think you are late into the position, because you are hesitating if the resistance and support holds, but usually to realize by the time you think it do, you are few pips away from the best/low risk entry.

The logic is simple, don't give too much concern if there's a fake breakout or a true breakout, don't give too much concern if the support/resistance hold or not hold. You enter the trade, is either you win or you lose. Eg, you sell on or near a resistance, you have a good risk/rewards on your trades, and with the market condition(with regard to either fundamental/technical reasons of yours) favoring a sell off, you will have high possibility of making a profit as well as profit good enough to cover a few losses.

The purpose of trading is to make more profit than your losses, while putting edge on your side with all knowledge, skills, statistics, probability, etc you equipped over time.

I'v been doing some paper trades. Got USD/JPY at 119.656 to sell and closed at 119.275. I keep calculating it as 3818pips, is that right?

Bro, it's 38.1 pips.

Forgive me for spamming your thread with my questions kinspk, but as a Rookie I can't start my own threads.

Does anyone know or have an opinion on:

If the FED chooses to hike rates, will the USD go up, down or sideways?
If the FED chooses to keep rates as they are, will the USD go up, down, or sideways?
Are either of these outcomes already baked in to the market to a degree?

I know what the USD would do traditionally in these scenarios, but these are crazy times we are living in and markets aren't necessarily doing what they would do normally.

Thanks.

The issue about Support and Resistance is you'll find occurrences of breaking of supports and resistances just as the same as holding or withstanding inside it.

Hello, can someone check this and tell me if I'v gone wrong anywhere (The attached .png of my paper trades). Also how do you decide the size you want to put on a a trade for a long period (i.e days, weeks ect...)

History repeats itself and basic principles of market movements remain the same but its still hard to base you FUTURE trading on past examples. Probably winning rate is at least 50% but still it's hard to make more on historical backtesting

What do you guys think about this?

No problem Bro, just post if you have questions, so anyone around can help each other.

Theoretically, when a central bank hike their rate, their currency should appreciate, but we wont know how long do it take to move up, how far it can move up, will it retreat first before moving up, etc. So always be caution and allow trades to breathe thru retracement even though you may get the right direction.

When rate kept unchanged, it may move sideway or retrace due to several reasons. Recently, Yellen had reinstated Fed's desire to hike the rate in 2015 keeping USD supported.

Very true Bro, positive strategy backtesting doesn't ensure same result in future market. Anything can happen and history just serve as a reference and anticipation towards a possible future outcome.

True Bro, that's why one shouldn't rely solely on indicator be it fundamental or technical, as it's as good as drawing a line and buy/sell base on it. But base on certain circumstances, a S/R may hold or break as a result of common actions execute by crowd's behaviors, interpretations, etc of the market.

I'm still learning. let's see if there are some other facts that causes solid S/R levels.

True S/R's come with experience and can be different for different instruments (not just high or lows).
To have an edge over well-capitalled traders you should know ins and outs of the instrument you trade with.