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A profitable trader will practice his uncomplicated system
so as to build confidence before trading with his real money.
He accepts that loosing is part of the game and
knows that profits are just around the corner, and he does not switch to
another system.
With good money management, he will always keep losses small
when he is wrong and leave the profits running
when he is right. |
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Capital preservation is the key
to survival in trading. IMO, the best approach to profitable trading is
partial profit takings.
A bird in hand is worth two or more in the bush. It's better to gain small but
real advantages than the possibility of a greater one.
Cutting your losses is as important as letting your profits run.
Automated trading helps made this a reality for me. |
|
Based on the assumption that the
market gives a 50/50 win/loss (ignoring the spread) and a risk/reward ratio of
1:2, it is incorrect to assume that you will get a 50% chance of winning twice
the amount for each loss you made over the long run.
The reason is that it is easier for the price to hit your stop loss and twice
harder for it to reach your take profit with the risk/reward ratio of 1:2.
Partial
profit taking is the steadier way to capital
preservation and let the remaining positions to
ride the trend to greater profitability.
Partial
exit strategy is not easy to implement manually but is a breeze with automated
trading. |
|
If
you can cut your losses to the minimum without hesitation and let your profits
run consistently, you can never lose with any trading strategy that gives you
an edge in your trading.
Many traders make the mistake of trying to perfect their trade entries when
they should pay more attention to devising and sticking to an effective exit
strategy and prudent money management. |
|
The Forex market is too complex
to allow the prediction of price movement with 100% certainty.
However, the probability for the market to continue its directional movement
is higher than a sudden change in its direction.
The trend is your friend until it bends.
Traders can take advantage of this universal law of momentum together with
proper money management to increase their odds of winning from the market. |
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We know from experience that
it's going to rain when we see dark clouds and hear thunders. The same logic
applies to the study of price patterns in predicting price direction.
Since the meteorologists rely on high tech to forecast the
weather,
shouldn't the traders do the same to predict market direction?
Trading robots can be programmed to recognize market trend and to trade
objectively based on price formation. Automation will free the traders the
chore of monitoring the market and allow them to spend more quality time with
their loved ones. |
|
Entering the trade just after a
price retracement will minimize a loss when the entry is wrong or will
maximize a gain when the entry is correct.
Buy low and sell high is the only way to profitable trading.
Automated trading has given me the speed advantage to have my open and close
orders accepted at the best possible prices. |
|
There should be 2 parts to any
trade entry.
The first is the entry setup that provides us with a
high probability of a winning trade.
The second is the trigger which tells us when is the
best time to enter our trade.
Precise entries (trigger) is more critical with shorter term day trading than
just getting the overall direction (setup) correct
with swing trading or position trading. |
| Technical indicators should never be used alone for the triggering of your
trade.
The reason is that all indicators are lagging since their computations are
based on historical prices.
Trade entry based on price pullback together with trade setup confirmation
based on technical indicators and price pattern will give traders a better
than average chance of success. |
| Trading the 123 method alone without visual aids like
the Bollinger Bands is like
navigating the terrain with a compass but without a
map coordinates:
Trading the 123 method with an indicator like the Bollinger Bands provide the
traders, a clearer picture of where the prices were
and where it is heading:
 |
| Using the Bollinger Bands as a guide, it is relatively easy to program an
EA to automate (from left
to right) Reversal, Trend and Breakout trades. |
| Prices tend to either bounce back or breakout at the Bollinger Bands
or the Support and Resistance levels.
By applying the Elliott wave principle with the bands
or levels, the traders
can trade with greater confidence based on high probability price patterns. |
| It's a well known fact that price moves in a wave manner, a.k.a. Elliott
Wave.
The difficulty faced by most traders is knowing where the wave is heading
next.
Having an indicator like the Bollinger Bands superimposed in the price chart
and by studying their relative positions and price action can provide the
traders with an excellent perspective of the price movements. |
| Bollinger Bands' standard deviations are designed to help determine when a
price move is statistically out of the ordinary.
Besides it's effectiveness as an excellent indicator for trade setup, the
automated trader can make better use of the bands dynamically as stop losses
and take profits to improve his chances and quantum of winnings. |
| Some traders use the Bollinger Bands as a method to produce buy and sell
signals, while others prefer to use the Bands to find trends, changes in
market direction, and to show the underlying trend in each market move.
The application of another indicator with the
Bollinger Bands will do well as a confirmation of the price movement. |
|
Trading without a stop loss is
like driving without a seat belt. A stop loss like a fastened seat belt can
limit the damages when a crash occurs.
While it isn't difficult to preset stop losses in our trades, so are the stops
hunting.
Having our stop losses programmed in a trading robot and hidden from the
brokers is a better way to stress free trading. |
|
All things said, should you
avoid setting a stop loss for your Forex trade? The answer has to be an
emphatic "NO"! It is dangerous and can potentially
cause severe damage to your account and your psyche. Yes, it is quite human to
sit on losses (and be praying real hard), but as a serious Forex trader, one
of your primary objectives must be to preserve trading capital to fight the
markets another day. |
|
A major cause of failure in
trading is letting your emotions dictate your actions.
Emotional trading will cloud your thinking and disrupt your trading plan.
The surest way to eliminate the greed of winning and the fear of losing is to
automate your trading processes.
Trading robots are 100% emotionless as long as we allow them to do what
they were programmed to do.
We should try not to interfere with the processes of trading robots with our
emotions unless we are convinced that they are no longer profitable. |
|
95% of traders who do not have or do not trade with a plan
lose money in Forex trading.
The trader who has a profitable trading
plan and follows the rules completely will end up as a winner.
The problem is that very few traders who trade manually can adhere to all
their rules all the time to become profitable.
It is said that "Rules that you can't or won't follow will not do you any
good".
This is the major issue with manual trading and this is the reason why I am an
advocate for automated trading. |
How not to trade Forex?
The Forex market is not random but only appears to be
so.
The result is due to traders making wrong trading
decisions more often than the correct ones.
While trades can be opened and closed at any point in time, many traders choose
to open and close their trades based on their fear or greed at the support and
resistance levels.
A good understanding of the price actions at these levels can provide the astute
traders, the edge to trade the market with the proper timing and the correct
direction.
The reason why technical analysis seems to work remarkably well has to do
with the self-fulfilling prophecy.
A good example is the concepts of support/resistance and the Fibonacci levels.
Because these levels are well-known, they are been watched and acted upon by a
critical mass of traders causing the forecast to become true due to their
combined actions in one way or another.
One of the common mistakes traders made is to enter and exit a trade too
impatiently.
You can make a positive difference to your trading results if you would just let
the prices come to you and not chase after them.
In Summary, the correct way to trade Forex
is to:
-
Make your trading rules as simple as
possible. Don't use anything (indicators and EAs) that you don't understand.
-
Never chase after the prices. Let the price
comes to you before you enter and exit a trade that is deemed to be in your favor.
-
Never trade without a Stop Loss. Always cut
your losses short and let your profits run in your exit rules.
With a trading strategy that incorporates a
high reward to risk ratio exit plan, you can still be profitable even if you
have more losing trades than the winning ones when the small losses are more
than covered by your bigger winnings.
Your trading profit can be dramatically improved with a high probability
trade entry setup and trigger, proper money management and a sound exit plan.
Common Secret
Trade for a Living?
Is Trading Gambling?
