11 July 2011
Marsa on Forex (2)
It's so easy...no?
If you were to look at forex trading from alternate point of view, it is actually very easy. All you have to do is to buy low and sell high, or sell high and buy low. That's how you make money. And anyone can do it. There are so many systems and methods out there that can do this for you. If you were to backtest any technical method, you would find that it would make you money whether you like it or not. Let's take the RSI for example. It's an oscillator that measures overbought and oversold conditions and generates reliable signals. You can even plot support and resistance levels and trendlines on the RSI. You can also trade convergences and divergences at tops and bottoms. For example, trading the divergence on the EURUSD 1-hr would have you short at 1.4224 with a 35-pip stop loss at 0000hrs 5 November, you'd be 200 pips richer today.
Back-Testing
There are lots of other methods and systems that actually work and can make you money. You only have to backtest them enough times to select one that you are comfortable with and that it suits your trading lifestyle. In backtesting these, you must work out their effectiveness against the different timeframes. Don't just plot an indicator or oscillator and scroll the charts back and forth and look for the "what ifs". What you should do is to apply your method or system and write down the points of entry and the subsequent profits or losses. Do this on different pairs. Then after a lengthy compilation of say, 100 trades, tabulate them into profits and losses and work out the averages. For example, when you apply your method to the 15-min charts, what is your average loss and profits. Try it on other timeframes. From here, work out if the method is profitable or not. If your method produces a 70% win it should be a good one. With a risk to reward ratio of 1:1, you should be making money. At the back of your mind, do know that no system or method is perfect no matter where it comes from. What we do is to make use of them to take calculated risks to generate profits and minimise losses.
Bad Losing Habits
Now, the only thing that can stop you from making money or make you lose money is yourself. Yes, you yourself, no one else, not your computer, not your charts, not your broker but you yourself. Why people lose money is because of their vested emotions with each trade. They can't help it. They tend to interfere with their positions and forget all the backtesting that they have done. For example, when their stop loss is at 35 pips and prices are approaching it, they either shift it or remove it altogether and take on potentially larger losses. Similarly, before prices move to their take-profit of 35 pips, they close their position prematurely and make less than intended. When they do this, they are back to the losers' old bad habit of consistently losing money. They have lost control. Then they think that the system or method doesn't work and go hunting for another system. What a waste of time and effort! And money!!
Hope and Fear
Such losing traders tend to resort to hope and fear. When they are losing, they hope that prices would move to breakeven or better. When prices are in the profit zone, they fear that the profit would shrink if they don't close their positions fast. The end results are larger losses and smaller profits.
Let's compare this to the winning traders. When they are losing, they fear larger losses and react by closing out the losers. When prices are on the plus side, they sit idly by and hope for bigger profits. The end results are smaller losses and larger profits.
Challenge yourself
So how do you, if you are a struggling trader, turn yourself around? You can only do so with a change of mindset. Of course it is easier said than done but one good way to overcome this is to put in your trade and turn off the computer. Simple as that. Know that the outcome has already been defined by you and taken care of. You are confident that you are either going to win or lose and you know how much too. You do not have to trade many times a day. Just one trade per day will do. Get out of your house and go as far as you can from your computer. And resist checking prices on your mobile. Check back much later to view your results. Win or lose, now, that is a good trade! Keep doing this until it becomes a habit. With your backtested method, you can't lose. 10 trades over 10 days, you are going to win 7! Congratulations! You are going to be a winner. Period.
Complicating yourself
Don't complicate your trading life. Forget about those monthly, yearly or decade charts. You won't know what to make of them anyway. Even if the monthly chart tells you that the trend is down, the weekly, daily, 4-hourly or hourly charts can swing 500 pips or more up within the month before coming off. So don't try to be too smart and look at too many different angles. You will only be confused. And keep your charts simple. If you are trading your own method or system, for example, the RSI, don't throw in the other obstacles like Bollinger Bands, Momentum, multiple moving averages, Stochastics, MACD, etc. Just use your RSI and just trade off it. After all, you've found your niche. So don't spoil it.
Trading Platforms
I can't think of or find another better trading platform for the beginner or even those who are still struggling other than Oanda's fxTrade with it's low spreads and odd-lots trade sizes. If you are the type who doesn't believe the recommendations of the many Oanda users here, you can try elsewhere but do know that if you go looking for trouble, you will surely find it. Don't go looking for something to whine about later. And for those who think they can trade on news, LOL! they can check out FXNews by clicking on the Resources tab.
Margins, Nuts and Bolts
For those who are still unsure about margins, leverage, customizing charts, etc, check out the following:
http://www.oanda.sg/assistance/quickguides/trading-getting-started/account-summary
For those who are still re-loading the indicators everytime they log in on Oanda's fxTrade, there is a feature to save your preferences and it can be found under the Tools tab.
tanchoo1, what an excellent contribution! I would tend to believe that you are a professional trader. You seem to be doing well. Keep it up and do keep your articles coming!
To those who are new and those who are still struggling, do read these guidlines by tanchoo1. After you have finished reading them, read again and build your own plans around them. They should help you a great deal.
MetaTrader4
About the MetaTrader4 platform, I was using it only because I was used to it. Now I am weaned off it and am used to trade off Oanda's fxTrade platform. For those who are keen on MT4, let's wait and see if Oanda releases it before year-end.
If you were to look at forex trading from alternate point of view, it is actually very easy. All you have to do is to buy low and sell high, or sell high and buy low. That's how you make money. And anyone can do it. There are so many systems and methods out there that can do this for you. If you were to backtest any technical method, you would find that it would make you money whether you like it or not. Let's take the RSI for example. It's an oscillator that measures overbought and oversold conditions and generates reliable signals. You can even plot support and resistance levels and trendlines on the RSI. You can also trade convergences and divergences at tops and bottoms. For example, trading the divergence on the EURUSD 1-hr would have you short at 1.4224 with a 35-pip stop loss at 0000hrs 5 November, you'd be 200 pips richer today.
Back-Testing
There are lots of other methods and systems that actually work and can make you money. You only have to backtest them enough times to select one that you are comfortable with and that it suits your trading lifestyle. In backtesting these, you must work out their effectiveness against the different timeframes. Don't just plot an indicator or oscillator and scroll the charts back and forth and look for the "what ifs". What you should do is to apply your method or system and write down the points of entry and the subsequent profits or losses. Do this on different pairs. Then after a lengthy compilation of say, 100 trades, tabulate them into profits and losses and work out the averages. For example, when you apply your method to the 15-min charts, what is your average loss and profits. Try it on other timeframes. From here, work out if the method is profitable or not. If your method produces a 70% win it should be a good one. With a risk to reward ratio of 1:1, you should be making money. At the back of your mind, do know that no system or method is perfect no matter where it comes from. What we do is to make use of them to take calculated risks to generate profits and minimise losses.
Bad Losing Habits
Now, the only thing that can stop you from making money or make you lose money is yourself. Yes, you yourself, no one else, not your computer, not your charts, not your broker but you yourself. Why people lose money is because of their vested emotions with each trade. They can't help it. They tend to interfere with their positions and forget all the backtesting that they have done. For example, when their stop loss is at 35 pips and prices are approaching it, they either shift it or remove it altogether and take on potentially larger losses. Similarly, before prices move to their take-profit of 35 pips, they close their position prematurely and make less than intended. When they do this, they are back to the losers' old bad habit of consistently losing money. They have lost control. Then they think that the system or method doesn't work and go hunting for another system. What a waste of time and effort! And money!!
Hope and Fear
Such losing traders tend to resort to hope and fear. When they are losing, they hope that prices would move to breakeven or better. When prices are in the profit zone, they fear that the profit would shrink if they don't close their positions fast. The end results are larger losses and smaller profits.
Let's compare this to the winning traders. When they are losing, they fear larger losses and react by closing out the losers. When prices are on the plus side, they sit idly by and hope for bigger profits. The end results are smaller losses and larger profits.
Challenge yourself
So how do you, if you are a struggling trader, turn yourself around? You can only do so with a change of mindset. Of course it is easier said than done but one good way to overcome this is to put in your trade and turn off the computer. Simple as that. Know that the outcome has already been defined by you and taken care of. You are confident that you are either going to win or lose and you know how much too. You do not have to trade many times a day. Just one trade per day will do. Get out of your house and go as far as you can from your computer. And resist checking prices on your mobile. Check back much later to view your results. Win or lose, now, that is a good trade! Keep doing this until it becomes a habit. With your backtested method, you can't lose. 10 trades over 10 days, you are going to win 7! Congratulations! You are going to be a winner. Period.
Complicating yourself
Don't complicate your trading life. Forget about those monthly, yearly or decade charts. You won't know what to make of them anyway. Even if the monthly chart tells you that the trend is down, the weekly, daily, 4-hourly or hourly charts can swing 500 pips or more up within the month before coming off. So don't try to be too smart and look at too many different angles. You will only be confused. And keep your charts simple. If you are trading your own method or system, for example, the RSI, don't throw in the other obstacles like Bollinger Bands, Momentum, multiple moving averages, Stochastics, MACD, etc. Just use your RSI and just trade off it. After all, you've found your niche. So don't spoil it.
Trading Platforms
I can't think of or find another better trading platform for the beginner or even those who are still struggling other than Oanda's fxTrade with it's low spreads and odd-lots trade sizes. If you are the type who doesn't believe the recommendations of the many Oanda users here, you can try elsewhere but do know that if you go looking for trouble, you will surely find it. Don't go looking for something to whine about later. And for those who think they can trade on news, LOL! they can check out FXNews by clicking on the Resources tab.
Margins, Nuts and Bolts
For those who are still unsure about margins, leverage, customizing charts, etc, check out the following:
http://www.oanda.sg/assistance/quickguides/trading-getting-started/account-summary
For those who are still re-loading the indicators everytime they log in on Oanda's fxTrade, there is a feature to save your preferences and it can be found under the Tools tab.
tanchoo1, what an excellent contribution! I would tend to believe that you are a professional trader. You seem to be doing well. Keep it up and do keep your articles coming!
To those who are new and those who are still struggling, do read these guidlines by tanchoo1. After you have finished reading them, read again and build your own plans around them. They should help you a great deal.
MetaTrader4
About the MetaTrader4 platform, I was using it only because I was used to it. Now I am weaned off it and am used to trade off Oanda's fxTrade platform. For those who are keen on MT4, let's wait and see if Oanda releases it before year-end.
Labels: Forex
