Some trading wisdom, tools and information I picked up along the way that helped me be a better trader. Maybe it can help you too.
Its a bit lengthy and I tried to condense it as much as I can. So take everything at a high level as each subject is has a lot more depth but fundamentally if you distill it down its just taking simple things and applying your experience using them to add nuance and better deploy them. There are exceptions to everything that you will learn with experience or have already learned. If you know something extra or something to add to it to implement it better or more accurately. Then great! However, my intention of this post is just a high level overview. Trading can be far too nuanced to go into in this post and would take forever to type up every exception (not to mention the traders individual personality). If you take the general information as a starting point, hopefully you will learn the edge cases long the way and learn how to use the more effectively if you end up using them. I apologize in advice for any errors or typos. Introduction After reflecting on my fun (cough) trading journey that was more akin to rolling around on broken glass and wondering if brown glass will help me predict market direction better than green glass. Buying a $100 indicator at 2 am when I was acting a fool, looking at it and going at and going "This is a piece of lagging crap, I miss out on a large part of the fundamental move and never using it for even one trade". All while struggling with massive over trading and bad habits because I would get bored watching a single well placed trade on fold for the day. Also, I wanted to get rich quick. On top all of that I had a terminal Stage 4 case of FOMO on every time the price would move up and then down then back up. Just think about all those extra pips I could have trading both directions as it moves across the chart! I can just sell right when it goes down, then buy right before it goes up again. Its so easy right? Well, turns out it was not as easy as I thought and I lost a fair chunk of change and hit my head against the wall a lot until it clicked. Which is how I came up with a mixed bag of things that I now call "Trade the Trade" which helped support how I wanted to trade so I can still trade intra day price action like a rabid money without throwing away all my bananas. Why Make This Post? - Core Topic of Discussion I wish to share a concept I came up with that helped me become a reliable trader. Support the weakness of how I like to trade. Also, explaining what I do helps reinforce my understanding of the information I share as I have to put words to it and not just use internalized processes. I came up with a method that helped me get my head straight when trading intra day. I call it "Trade the Trade" as I am making mini trades inside of a trade setup I make from analysis on a higher timeframe that would take multiple days to unfold or longer. I will share information, principles, techniques I used and learned from others I talked to on the internet (mixed bag of folks from armatures to professionals, and random internet people) that helped me form a trading style that worked for me. Even people who are not good at trading can say something that might make it click in your head so I would absorbed all the information I could get.I will share the details of how I approach the methodology and the tools in my trading belt that I picked up by filtering through many tools, indicators strategies and witchcraft. Hopefully you read something that ends up helping you be a better trader. I learned a lot from people who make community posts so I wanted to give back now that I got my ducks in a row. General Trading Advice If your struggling finding your own trading style, fixing weakness's in it, getting started, being reliably profitable or have no framework to build yourself higher with, hopefully you can use the below advice to help provide some direction or clarity to moving forward to be a better trader.
KEEP IT SIMPLE. Do not throw a million things on your chart from the get go or over analyzing what the market is doing while trying to learn the basics. Tons of stuff on your chart can actually slow your learning by distracting your focus on all your bells and whistles and not the price action.
PRICE ACTION. Learn how to read price action. Not just the common formations, but larger groups of bars that form the market structure. Those formations carry more weight the higher the time frame they form on. If struggle to understand what is going on or what your looking at, move to a higher time frame.
INDICATORS. If you do use them you should try to understand how every indicator you use calculates its values. Many indicators are lagging indicators, understanding how it calculates the values can help you learn how to identify the market structure before the indicator would trigger a signal . This will help you understand why the signal is a lagged signal. If you understand that you can easily learn to look at the price action right before the signal and learn to watch for that price action on top of it almost trigging a signal so you can get in at a better position and assume less downside risk. I recommend using no more than 1-2 indicators for simplicity, but your free to use as many as you think you think you need or works for your strategy/trading style.
PSYCOLOGY. First, FOMO is real, don't feed the beast. When you trade you should always have an entry and exit. If you miss your entry do not chase it, wait for a new entry. At its core trading is gambling and your looking for an edge against the house (the other market participants). With that in mind, treat as such. Do not risk more than you can afford to lose. If you are afraid to lose it will negatively effect your trade decisions. Finally, be honest with your self and bad trading happens. No one is going to play trade cop and keep you in line, that's your job.
TRADE DECISION MARKING: Before you enter any trade you should have an entry and exit area. As you learn price action you will get better entries and better exits. Use a larger zone and stop loss at the start while learning. Then you can tighten it up as you gain experience. If you do not have a area you wish to exit, or you are entering because "the markets looking like its gonna go up". Do not enter the trade. Have a reason for everything you do, if you cannot logically explain why then you probably should not be doing it.
ROBOTS/ALGOS: Loved by some, hated by many who lost it all to one, and surrounded by scams on the internet. If you make your own, find a legit one that works and paid for it or lost it all on a crappy one, more power to ya. I do not use robots because I do not like having a robot in control of my money. There is too many edge cases for me to be ok with it.However, the best piece of advice about algos was that the guy had a algo/robot for each market condition (trending/ranging) and would make personalized versions of each for currency pairs as each one has its own personality and can make the same type of movement along side another currency pair but the price action can look way different or the move can be lagged or leading. So whenever he does his own analysis and he sees a trend, he turns the trend trading robot on. If the trend stops, and it starts to range he turns the range trading robot on. He uses robots to trade the market types that he is bad at trading. For example, I suck at trend trading because I just suck at sitting on my hands and letting my trade do its thing.
Trade the Trade - The Methodology
Base Principles These are the base principles I use behind "Trade the Trade". Its called that because you are technically trading inside your larger high time frame trade as it hopefully goes as you have analyzed with the trade setup. It allows you to scratch that intraday trading itch, while not being blind to the bigger market at play. It can help make sense of why the price respects, rejects or flat out ignores support/resistance/pivots.
Trade Setup: Find a trade setup using high level time frames (daily, 4hr, or 1hr time frames). The trade setup will be used as a base for starting to figure out a bias for the markets direction for that day.
Indicator Data: Check any indicators you use (I use Stochastic RSI and Relative Vigor Index) for any useful information on higher timeframes.
Support Resistance: See if any support/resistance/pivot points are in currently being tested/resisted by the price. Also check for any that are within reach so they might become in play through out the day throughout the day (which can influence your bias at least until the price reaches it if it was already moving that direction from previous days/weeks price action).
Currency Strength/Weakness: I use the TradeVision currency strength/weakness dashboard to see if the strength/weakness supports the narrative of my trade and as an early indicator when to keep a closer eye for signs of the price reversing.Without the tool, the same concept can be someone accomplished with fundamentals and checking for higher level trends and checking cross currency pairs for trends as well to indicate strength/weakness, ranging (and where it is in that range) or try to get some general bias from a higher level chart that may help you out. However, it wont help you intra day unless your monitoring the currency's index or a bunch of charts related to the currency.
Watch For Trading Opportunities: Personally I make a mental short list and alerts on TradingView of currency pairs that are close to key levels and so I get a notification if it reaches there so I can check it out. I am not against trading both directions, I just try to trade my bias before the market tries to commit to a direction. Then if I get out of that trade I will scalp against the trend of the day and hold trades longer that are with it.Then when you see a opportunity assume the directional bias you made up earlier (unless the market solidly confirms with price action the direction while waiting for an entry) by trying to look for additional confirmation via indicators, price action on support/resistances etc on the low level time frame or higher level ones like hourly/4hr as the day goes on when the price reaches key areas or makes new market structures to get a good spot to enter a trade in the direction of your bias.Then enter your trade and use the market structures to determine how much of a stop you need. Once your in the trade just monitor it and watch the price action/indicators/tools you use to see if its at risk of going against you. If you really believe the market wont reach your TP and looks like its going to turn against you, then close the trade. Don't just hold on to it for principle and let it draw down on principle or the hope it does not hit your stop loss.
Trade Duration Hold your trades as long or little as you want that fits your personality and trading style/trade analysis. Personally I do not hold trades past the end of the day (I do in some cases when a strong trend folds) and I do not hold trades over the weekends. My TP targets are always places I think it can reach within the day. Typically I try to be flat before I sleep and trade intra day price movements only. Just depends on the higher level outlook, I have to get in at really good prices for me to want to hold a trade and it has to be going strong. Then I will set a slightly aggressive stop on it before I leave. I do know several people that swing trade and hold trades for a long period of time. That is just not a trading style that works for me.
Enhance Your Success Rate Below is information I picked up over the years that helped me enhance my success rate with not only guessing intra day market bias (even if it has not broken into the trend for the day yet (aka pre London open when the end of Asia likes to act funny sometimes), but also with trading price action intra day. People always say "When you enter a trade have an entry and exits. I am of the belief that most people do not have problem with the entry, its the exit. They either hold too long, or don't hold long enough. With the below tools, drawings, or instruments, hopefully you can increase your individual probability of a successful trade. **P.S.*\* Your mileage will vary depending on your ability to correctly draw, implement and interpret the below items. They take time and practice to implement with a high degree of proficiency. If you have any questions about how to do that with anything listed, comment below and I will reply as I can. I don't want to answer the same question a million times in a pm. Tools and Methods Used This is just a high level overview of what I use. Each one of the actions I could go way more in-depth on but I would be here for a week typing something up of I did that. So take the information as a base level understanding of how I use the method or tool. There is always nuance and edge cases that you learn from experience.
I keep a general high level Macro outlook for currencies. I dont get too deep into Fundamentals and just keep an eye out for news. If I am already in a trade I will hold it if its far enough away from my entry. However, I wont enter right before/during news as it can invalidate your setup.
I started with the basics of learning the standard price action formations/patterns and candles. You can find tons of free info on that online, google is your friend. Then I stared at charts and said "why did the price do that or do this etc" then after a while I started to understand what's happening without having to think about it and I can see the market structure without having to look as closely as I did in the past.
After many many hours of staring at 5 min charts for 15 hours a day 5 days a week I learned how to look at 5 min charts and be like "Oh that's a hammer on the 15 min etc. If you keep track of time you can do the same for hourly candles as well and you will start to see market structure naturally. However I typically trade in a two chart panel window so I have a 15 min and 5 min chart up when trading intra day so I dont have to think too hard about it.
Draw support resistance lines on Daily/4hr timeframes. I prefer to use body of the candle instead of the wick for support/resistance.
You can find support/resistance liquidity levels through out the day as well and trade those if the price retraces back through levels its already been through that same day.
It would be a bit length to explain exactly the best place to draw them. If your unsure there is plenty of free resources on the internet. Just try to use your head and look for price levels where the price was "Supported" or it "Resisted" that price level then slap a line on it. Draw as few or as many lines as you feel helps you and your style. I tend to lean on the side of fewer. I typically do about 6 lines main support/resistances (3 of each).
Draw two Fibonacci Extensions. One on the daily timeframe, and then one on the 4hr time frame. Then you can trade the Fibonacci levels and use them for TP targets or entry zones if price action respects the level. Also you can use it along with support/resistance and pivots if they happen to line up or are very close.
I cannot really figure out how to put it into words how to draw a Fib if you dont know how. I will have to make a picture to demonstrate it. If your interested post below and I will draw one up and post a link. Probably the easiest way to understand. Just keep in mind the Fib you draw on the 4hr time frame will be inside the daily timeframe one.
The TradeVision2020 dashboard that I use just helps me keep a tab on the current market post plus any swing strength/momentum a currency might have on higher time frames. Helps me look for shifts in the market or confirmation that the bias it already has in momentum is continuing. I have found that often currencies when they get really/weak or strong might continue for several days or even longer like a full week or more. We recently had what felt like 1 week or so of flat out Yen weakness which was making some things wonky. All it does is allow me to look at the dashboard instead of a million other charts.
I use two that work well for my intra day style. The Stochastic RSI is just like a RSI but its faster. The second is the Relative Vigor Index which I use to detect swings in momentum and divergences in bullish/bearish momentum. I have used many others in the past, but as I have grown and got better as a trader I have found making my analysis simpler has improved my trading.I dont like the whole idea of have 43 different indicators on 32 different time frames light up a dashboard to be green for me to enter a trade. With how I do it now, I have a clear understanding of what I expect to happen and why. That way when it does happen I understand the move and dont get freaked out if the market moves funny after I am in the trade.
Conclusion I use the above tools/indicators/resources/philosophy's to trade intra day price action that sometimes ends up as noise in the grand scheme of the markets movement.use that method until the price action for the day proves the bias assumption wrong. Also you can couple that with things like Stoch RSI + Relative Vigor Index to find divergences which can increase the probability of your targeted guesses. Trade Example from Yesterday This is an example of a trade I took today and why I took it. I used the following core areas to make my trade decision.
Fundamental Bias: I already had a bullish fundamental outlook on EUUSD with expecting the markets to price in future similes due a higher an higher chance of Biden winning on paper as the election closed in and a "Blue wave" coming which would lead to a weaker dollar. Also, the Euro Zone is getting hammered with COVID pretty hard plus Brexit drama so I had a strong Euro bias.NOTE: As frame of reference, all the other pairs I trade I traded as if they were ranging and trade a range. Markets are messed up right now.
Currency Strength/Weakness: I use a tool that gives me a currency strength/weakness dashboard called TradeVision2020. Helps me track individual currency strength/weakness intra day. Took me about a month to get used to it, but helps me keep track of intra day strength/weakness that can add a bias to trade direction as the day unfolds. Like "Will this run have a 2nd or 3rd push higher" or "I should look to TP at the first sign of weakness in the push" type bias data. You still got to use your brain and figure out the best decision. It wont make choices for you, its only a guide.NOTE: I am not trying to adverse the tool (if providing the code is against sub rules let me know), its just a tool I use every day that helps me with directional bias calls. I am sharing the coupon code that was given to me when I found out about the tool in the TradingView forex chatroom and the guy gave me the code to use when I signed up. I dont want someone to read the name and want to try it out then overpay for no reason. The coupon will give you 40% off. Coupon Code: 3F7A0T5T
Higher Timeframe Analysis: Detected some early signs of Bearish Divergence on the 1hr chart using a on a higher time frame using a Stochastic RSI. Then I saw more confirmation on 5 min charts using Relative Vigor Index to help time my entry mid session.
Pivot Points: I treat pivot points like support/resistance and trade them as such using price action to give me some idea how its being treated by the market. Pretty straight forward.
It may seem like a lot of stuff to process on the fly while trying to figure out live price action but, for the fundamental bias for a pair should already baked in your mindset for any currency pair you trade. For the currency strength/weakness I stare at the dashboard 12-15 hours a day so I am always trying to keep a pulse on what's going or shifts so that's not really a factor when I want to enter as I would not look to enter if I felt the market was shifting against me. Then the higher timeframe analysis had already happened when I woke up, so it was a game of "Stare at the 5 min chart until the price does something interesting" Trade Example: Today , I went long EUUSD long bias when I first looked at the chart after waking up around 9-10pm Eastern. Fortunately, the first large drop had already happened so I had a easy baseline price movement to work with. I then used tool for currency strength/weakness monitoring, Pivot Points, and bearish divergence detected using Stochastic RSI and Relative Vigor Index. I first noticed Bearish Divergence on the 1hr time frame using the Stochastic RSI and got confirmation intra day on the 5 min time frame with the Relative Vigor Index. I ended up buying the second mini dip around midnight Eastern because it was already dancing along the pivot point that the price had been dancing along since the big drop below the pivot point and dipped below it and then shortly closed back above it. I put a stop loss below the first large dip. With a TP goal of the middle point pivot line Then I waited for confirmation or invalidation of my trade. I ended up getting confirmation with Bearish Divergence from the second large dip so I tightened up my stop to below that smaller drip and waited for the London open. Not only was it not a lower low, I could see the divergence with the Relative Vigor Index. It then ran into London and kept going with tons of momentum. Blew past my TP target so I let it run to see where the momentum stopped. Ended up TP'ing at the Pivot Point support/resistance above the middle pivot line. Random Note: The Asian session has its own unique price action characteristics that happen regularly enough that you can easily trade them when they happen with high degrees of success. It takes time to learn them all and confidently trade them as its happening. If you trade Asia you should learn to recognize them as they can fake you out if you do not understand what's going on. TL;DR At the end of the day there is no magic solution that just works. You have to find out what works for you and then what people say works for them. Test it out and see if it works for you or if you can adapt it to work for you. If it does not work or your just not interested then ignore it. At the end of the day, you have to use your brain to make correct trading decisions. Blindly following indicators may work sometimes in certain market conditions, but trading with information you don't understand can burn you just as easily as help you. Its like playing with fire. So, get out there and grind it out. It will either click or it wont. Not everyone has the mindset or is capable of changing to be a successful trader. Trading is gambling, you do all this work to get a edge on the house. Trading without the edge or an edge you understand how to use will only leave your broker happy in the end.
Access Part I here: https://www.reddit.com/Forex/comments/h0iwbu/part_i_my_10_minuteday_trading_strategy/ Welcome to Part II of this ongoing series. How many parts will there be? No idea. At least 4-5, I guess. I'd rather have this broken down into digestible chunks than just fire hose you with information. Part I was really just a primer. If I'm using the whole baking a cake analogy, then in Part I we covered what kind of cake we're baking. I will not cover in this post where we look for entries and exits, that's coming next. Part II is going to cover what ingredients we need and why we need those ingredients in greater detail. What Kind Of Strategy Is This Again?It's my 10 minutes per day, trading strategy. I think the beauty of this strategy is that it allows you to take a good number of trader per week without having to commit an inordinate amount of time to the screens. This is both a mean reversion and trend-continuation based strategy. It is dead simple to learn and apply. I'd expect a 10 year old to be able to make money with this. The List Of Ingredients & Why We Use These Particular Ingredients *I will have an image at the end of the post showing a textbook long and short setup* Bollinger Bands: Bollinger Bands (BB) have a base line (standard is the 20SMA, which is also what we will use for this strategy) and two other trend lines (known as the upper Bollinger band [UBB] and lower Bollinger band [LBB]) plotted 2 standard deviations away from the 20SMA. The idea behind BB is deviously simple - the vast majority of price action, approx. 90%, takes place in between the two bands. In other words, when price trades off the UBB or LBB, you could consider prices to be overbought/oversold. However, just because something is OVERbought does NOT mean its run is OVER. Therefore we need additional tools to make sure we are using the BB as effectively as possible. TLDR: BBhelp contextualize where to look for our technical setups using this strategy. Finding the candle/bar pattern is not enough. We need to make sure the setup is in the 'right' part of the chart. We accomplish that using the BB. Stochastic Oscillator: The Stochastic Oscillator (Stochs) is a secondary momentum indicator. Because it is an oscillator that means the signals it generates are range-bound between 0 and 100. There are tons of momentum indicators out there. Theoretically you could swap out the Stochs for RSI or MACD. My hunch is that you won't see a measurable statistical difference in performance if you do. So why Stochs? Because I like the fact you have the %K and %D lines (you can think of them as moving averages) and the fact that the %K and %D lines crossover is a helpful visual aid. Like any other momentum indicator, the Stochs will generate overbought and oversold signals. We use the Stochs to help back up what the BB are telling us. If price is trading at, or even broken out of, the UBB and Stochs are also veeeery overbought that can be potentially useful information. It doesn't mean we have a trade necessarily, but it is a helpful piece of data. Fibonacci Retracement & Extension Tool: This tool is OPTIONAL. The only reason I use this tool for this strategy is to integrate a mechanistic means of entry and exit. In other words, we can use fibonacci levels to place limit orders for entry and profit taking, and a stop order to get us out for our pre-defined risk allocation to each particular trade. If you DON'T want to use the fibs, that is perfectly okay. It just means you will add a more discretionary layer to this strategy Candlestick/Bar Patterns: There isn't a whole lot to say here. We look for ONE formation over, and over, and over again. An indecision bar (small body, doesn't close on its highs or lows) followed by the setup bar which is an outside bar or an engulfing bar. It doesn't particularly matter if the setup bar is an engulfing bar or outside bar. What matters is that for a long trade the setup bar makes a HIGHER HIGH and has a HIGHER CLOSE relative to the indecision bar. The opposite for a short trade setup. The bar formation is what ultimately serves as the trigger for placing orders to take a trade. *MOVING ON* Now We Get Into The Setup Itself:There are 3 places where we look for trades using this strategy:
Short off the UBB (Here we want to see Stochastics overbought and crossing down. Bearish divergence is even better)
Long off the LBB (Here we want to see Stochastics oversold and crossing up. Bullish divergence is even better)
Long/Short off the Middle Bollinger Band (Here if you are looking for a short trade off the MBB you ideally want Stochs overbought. Vice versa for a long trade. NOTE: Often when taking trades off the MBB, Stochs WON'T go overbought/oversold. Because this doesn't happen often, I don't let it stop me from taking trades off the MBB.)
THE BRITISH POUND SURGES FROM THE ASHES WITH A BULL MARUBUZO, AFTER A DOJI DRAGONFLY CANDLESTICK, ON THE BACK OF STRONGER THAN EXPECTED CPI DATA, SIGNAL THAT UK CONSUMERS HAVE BEEN SPENDING, WHILE THE POSSIBILITY OF THE UK ECONOMY REBOUNDING DECENTLY, GIVEN ALSO THE POTENTIAL AVAILABILITY OF A UK MADE VACCINE READY TO BE DEPLOYED IN WINTER Q4.THE GBP/USD CHART HINTS TO FEW TECHNICAL POINTS THAT SUPPORT THE BUY SIGNAL IN THE BRITISH POUND: THE RSI(14) OSCILLATOR MOVES HIGHER ON A DOUBLE BOTTOM PATTERN, THE ICHIMOKU TENKAN LINE PROVIDES SUPPORT, WHILE ALSO HAVING MOVED THROUGH THE IKH KIJUN LINE AS A BUY SIGNAL, FURTHERMORE CLEARING OFF THE GBP/USD 1.2698 200 DAYS MOVING AVERAGE CAN EVENTUALLY GIVE A CONSISTENT BUY SIGNAL WITH CONCRETE MARKET POSSIBILITY OF CABLE MOVING TOWARD GBP/USD 1.30 IN A +3.0%.HAVING SAID THAT, WORTH TO NOTICE THAT IN THE LONGER TERM, A PERMANENT BUY SIGNAL FOR THE POUND WOULD REQUIRE A FLOOR EXCHANGE RATE OF GBP/USD 1.40 AND ABOVE, THEREOF A SHORT TERM UPSIDE MOVE +3.0% TO GBP/USD 1.30 DOES NOT PROVIDE A LONGER HORIZON FORECAST; IN SO A CONSISTENT CHANGE IN THE BRITISH WILL REQUIRE AN OVERALL LONGER TERM CHANGE IN MARKET POSITIONING AMONG ASSETS MANAGERS/INSTITUTIONAL INVESTORS AND LEVERAGED FUND THAT HAVE HEAVILY SKEWED POSITION SHORT ON GBP/USD. IN FACT FOR AN OVERALL 105 MOST RELEVANT FOREX MARKETS INVESTORS, 57 BETWEEN ASSETS MANAGERS/INSTITUTIONAL AND LEVERAGE FUNDS ARE CONSISTENTLY SHORT ON THE BRITISH POUND FOR AN OVERALL 128,805 CONTRACTS IN A TOTAL 180,969 CONTRACTS.
How i came up with my first Forex Trading Strategy
You don’t necessarily need full blown strategy to start back testing. This is what I did. You can take it for what its worth. When I came up with my first strategy.
Decide if you would like to come up with one of the following ( if you are new, stick one of these until you have mastered this)
a. Trend Continuation b. Trend Reversal I would advise newbies to start with Trend continuation since Reversal are bit more complicated and you need to take a lot of things into consideration
I picked Trend continuation. From here it’s an open playing field. But keep in mind that we are still building a strategy. I’m a technical trader who uses candlestick signals to alert me on a possible trade. That’s said for now you are going to focus on two candlestick signals. Let keep it simple and focus on Engulfing candles and Hammer Candles
Now that you know what time of candles sticks you will be focusing on let’s get deeper into the strategy building part. I will be discussing a LONG(Bullish) strategy but reverse this if you want to build a SHORT(Bearish) strategy . In order for price to confirm that the we have Bullish trend we need to first see price making at least one higher Low and a higher High. So using a web application such as Tradingview you will go back in time on a Forex pair to point where the price has a Higher Low and a Higher High.
At this point once price has formed a higher high we analysis how price acted. Most of the time following a higher high price would pull back to a key level. This level could a previous resistance now turn into the support level or key Moving Average. This where you need to be creating and start adding and removing Moving average(MA). In my opinion keep it simple and stick to 2 -3 MA’s. For an example let say once the price formed a Higher high price pull back to a 20 EMA and a support level and printed Hammer candle stick signal. In your next step you want to go back in time may 3 -5 years check to see how price acted every time your criteria was present. NOW THE BACK TESTING STARTS. You want to document every win and loss to understand the W/L Ratio. You can even add an indicator such as MACD, Stoch and RSI as an added level of confirmation. All in all keep the indicator to a minimal and NEVER GET INTO A TRADE BECAUSE YOUR INDICATORS LINED UP. PRICE IS KING.
From this point on keep documenting the process and revising your strategy still you have a working back tested strategy
Evaluate yourself, honestly. What kind of attributes will you need reflected in your trading plan? Indecisiveness is not working in your favour when your money is on the line.
While you're trading, your plan should be set solidly - making changes on the fly is a losing proposition. The plan should be re-evaluated when you're out of the market, but not while you're in it! Stick to the plan.
No emotions. Stick to the plan.
Paper trade and backtest your plan before putting your money on the line!
Diversify your portfolio. If you're putting a lot of money on the line, have it spread out over multiple securities in multiple sectors to pad yourself against damaging market movements.
6. A Trading Plan
So you've been following TAWR for the last month - what does your trading plan look like? If you haven't started one yet, that's okay - that's what we start to cover in this week's post. First, you need to do a little soul searching.
Is this the right market for you to trade in?
Unlike other markets, the Bitcoin market does not close, not even on weekends. (International exchanges are for the most part open 6 days out of 7. BTC is around the clock.) This means there is constantly something happening, something to be watching for. Obviously you needn't be watching charts all the time and losing sleep and cuddle time because of a possible overseas news bit making waves - but this does open the market up for a lot of activity and this can be a serious stressor. If this will be too much for you, don't worry! This isn't the only market you can trade in. If this is a serious concern for you, consider other markets on the Forex. There are plenty of currency pairs to trade in that aren't nearly as crazy as those involving XBTs. ...If you're still here and not looking up USD/CHF market behaviour, that must mean you like rollercoasters.
Type of Trader: Being Honest With Yourself
Are you a swing trader? Long-term buy-and-holder looking to make a little extra in the short-term? Just curious what it's like to do what a daytrader does? Answering the question of "what type of trader are you" is important when setting up a trading plan, because certain indicators are better suited to different styles of trading. Your trading style will not necessarily reflect mine. Yours will likely differ a lot from mine and everyone else' - but as long as you can make decisions based off of that plan, and they make you money when followed, it is a good trading plan. Ultimately, the goal of answering that question isn't to give yourself a label, it's to find a set of technical rules that you can follow that 1) make you money, and 2) that you can actually act on. Trader indecisiveness is a serious problem when on the (digital) trading floor. If you have a killer plan that seems like it'll work well for you based on the backtesting, but you find that you can't actually decide when to enter and exit a position because it's reacting very sensitive to market movements, that's trader indecisiveness. Suppose it's not reactive enough and you miss entry points every time they pass? That's also trader indecision. If you can take action based on the indicators, and make money as a result, that's a good plan. If not, go ahead and make revisions to the plan. Identify what's causing your money to disappear into fees and other traders' pockets, and make changes to keep that from happening! I mentioned backtesting. That's important because whenever you come up with (or change) a trading plan, you need to...
PAPER TRADE FIRST.
If you aren't making money on paper, why would you make money in the market? To paper trade, take down your actions based on your prospective trading plan, using actual market data. Follow the market and see if your trades would have made money if you had actually executed them on the market. If you're making satisfying gains consistently on those trades based on the rules of your plan, you can have confidence in your trading plan. If you're losing money or just barely breaking even, consider revisions to your trading plan. You can use historical data to check your plan's profitability, since it's readily available. Bitcoincharts.com and Tradingview.com both let you see historical data from the Bitcoin market, for example. Obviously this will not be terribly useful to you until you've built your plan, but if you've already started to play with some indicators just to get a feel of how they look and react with the data, you'll find those two links somewhat helpful in getting a jump on next week's post.
Stick to the Facts.
Maybe your gut has never done you wrong, but always follow the chart. Befriend the trend. Trust the chart. Facts don't lie. Evidence doesn't lie. Make money by going with the market, not against it, no matter what your emotions or feelings are telling you. This is something I've been guilty of, because the fact is I love Bitcoin. I really do. I love its functionality, its widespread growth, and the fact that it's techy at its decentralized heart. (That's a paradox, by the way.) But when a trader gets too involved with their chosen security, they believe in it for the wrong reasons. As much as I love Bitcoin, I have to sell it if the price goes into a mad nosedive. If you believe in the long-term success of Bitcoin, cool - know why you believe in it. Otherwise, just trade it and don't get too attached to it. One of the key differences between Bitcoin and traditional stocks are that stocks are not food or clothes - you can't eat or wear stocks, so selling them is how you make money (locking in profits vs making gains "on paper"). However, Bitcoin actually does have use. It can be spent like any other currency (except faster!) and therefore having a lot of this security actually does give you a function you might not otherwise have. All the same, decide just how close you want to be to Bitcoin. If you believe it'll always and forever have a value, and will increase in value over time no matter what, then go ahead and collect as many as you can afford. If you have your cautious doubts, be aware of the previous point about getting too close to the security, and trade it like any other stock. It's all about making money, whether you measure your monetary gains in USD or XBTs. This next segment is right out of Barbara Rockefeller's "Technical Analysis for Dummies, 2nd ed." book, and is always true whether you're into cryptocurrencies or traditional stocks.
"Diversification reduces risk. The proof of the concept in financial math won its proponents the Nobel prize, but the old adage has been around for centuries: “Don’t put all your eggs in one basket.” In technical trading, diversification applies in two places:
Your choice of indicators: You improve the probability of a buy/sell signal being correct when you use a second, noncorrelated indicator to confirm it. You don’t get confirmation of a buy/sell signal when you consult a second indicator that works on the same principle as the first indicator. Momentum...doesn’t confirm relative strength because it adds no new information. Widen your horizon beyond a few indicators, and seek different concept indicators instead of torturing old indicators to come up with better parameters.
Your choice of securities: You reduce risk when you trade two securities whose prices move independently from one another. If you trade a technology stock, you achieve no diversification at all by adding another technology stock. Instead, you may get a better balance of risk by adding a stock from a different sector. If you trade metals futures, add something from agriculture or finance to get diversification. You can estimate degree of correlation scientifically with a spreadsheet or informally by eye (charting both securities in the same space)."
Deciding on Indicators
Wait til next week and we'll go over those! We'll see which ones fit with faster or slower trading plans (both are useful in Bitcoin) and you get to branch off from there and build your plan accordingly.
I'll welcome redditors to either comment or PM me their trading plans I'll do my best to look them over and offer suggestions or warnings as I see them. Again, I'm no guru or all-knowing being, and I'm not a certified trader or money manager or anything of that nature - but I'll offer the benefit of my research over the last few months regarding the indicators we've covered. Stay curious, make money, have fun and see you next week.
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