All indicators in the
form of MACD’s, stochastics, RSI, Gann, Elliot Waves, etc are
completely useless to your trading. Forget the whole lot and ignore
them. At best they distract you from what only matters (price) at
worse they make you believe you can actually predict the future and
this leads to losing money.
Moving Averages are an
“aid” to trading. Got it? A visual aid nothing more and nothing
less. I use one in my day trading simply to keep me on the right side
of the trend.
Day trading is not about
taking many trades throughout the day. Successful day trading is
waiting for 1-4 high probability trades each day and trading them
successfully. What is successful trading?:
1) Not risking more than
2% of your equity on any one trade
2) Cutting those losing
trades.
3) Letting the winners
run
4) Being consistent. YOU
MUST stay true to one method and not jump around from method to
method and/or keep tweaking the rules.
I want to be clear here.
This is not going to be a “How to Guide” It’s a very basic and
very easy system. Apply it consistently with low leverage (<3X)
and see your account grow over time. What kind of returns can be
made? 2-6% per month. There will be losing periods. Heck you will
even have losing months. No day trader I know wins every month. Your
job is to keep those losing periods down to a minimum so you can live
to trade another day.
I have seen systems
promising 20%+ per month. But when you look at their “hypothetical
results” you have to lose up to 75% of your money to do this? And
what if it stops working? Be realistic. Don’t be greedy. This leads
to big losses and stress. Be happy with small monthly gains that
grow. 4% on $200,000 is $8,000 per month. I once talked to a guy
whose job it was to evaluate trading systems for an auditing firm.
What he said has always stuck with me. He said, “Mark” out of the
thousands of systems I have come across this is what I found. The
very simple systems. The ones you could write on the back of an
envelope were the winning methods. The more complicated the system.
The more rules and indicators that had the worse their performance.
Amazing. And some of these systems trades institutional money worth
hundreds of millions of dollars. I am trying to drill this into you
because it’s human nature to want a super complicated system. To
beat the markets using something new. I have seen traders making
millions. And every time it was with a very simple system BUT the
markets lined up. I.e the markets moved big. And when they do you
want to catch those moves with a simple price system. It’s never
the system stupid it’s always the markets and
the trader trading them.
When I started day trading forex. I tried to scalp the markets using
1 minute and 5 minute bar charts. I lost tons of money. I am telling
you now anything less than 15 minute charts and the noise, random
movement is too much to trade. When I moved up to 15 minute bar
charts and went with the trend I started making money. Not on every
trade. But over time I was making more than I was losing.
Go with the Trend:
We are day traders but
you still get the best moves that go with the trend. Markets react,
correct and move counter trend for a short. For this use a 30 bar
Expediential Moving Average. Overlay this on the 15 minute Bar chart
of your currency pair. (Here I use the Euro$/USD) Trade from 08:00
GMT until 17:00 GMT only. Ignore all news items/ fundamentals.
What you want TO SEE ARE
prices (15 minute bar) go through the 30 bat moving Average. Then
wait for the correction.
*** PRICES MUST NOT CLOSE
BACK THROUGH THE MOVING AVERAGE**
So if you are looking at
buying the EUR$ and the price goes up through the 30 bar Moving
average on the correction the 15 minute bar must not close below this
moving average. If it does scratch the trade and wait. You have to be
disciplined and patient. It’s about getting a few almost certain
possibly trades every day. It’s not about jumping in and out
randomly.
Enrty
15 minute bar with the
M.A. I talked about above. Entry is either:
1) A break out from the
minute bar.
2) A breakout from a
reversal.
See the trade below. Take
the breakout of the 15 minute bar UNLESS there is a reversal bar
which gives a better entry. Always enter orders 3 pips above or below
the 15 minute entry bar.
Exit
Once in a Trade your exit
is simply by using the following rules on your trailing stop loss:
When you are in a trade this is how you profit or get out with a
small loss. You simply trail the stop loss as the trade goes your
way. Do not try to get out when you “think” it has moved enough,
etc. Let the price hit the stop to get you out:
1) When you are in a
trade. The initial stop goes at 20 pips away. Use hard stops. The
maximum you want to lose is 20 pips.
2) Keep trailing the stop
by 20 pips as new lows/highs are made.
3) When you are 20 pips
up in profit now trail your stop by 15 pips.
4) If you are lucky
enough to hit 30 pips in profit now move your trailing stop to 10
pips.
Most of the time you will
get knocked out of the trade with around 10-15 pips profit.
Occasionally you snag a real fast market and I have made over 50 pips
on some trades. The tightness of the trailing stop usually means you
can’t ride out the correction. But we don’t want to.
That’s it. Trade.
Watch, wait and repeat. GBP/USD Trade: Small consistent profits using
my simple system. Sorry I couldn’t add more fluff and page filler
for those guys who want a 200-page+ system. It’s not my style. Get
in the markets and start looking for these trades.
Day trading can be as
stressful or as enjoyable as you make it out to be. OK? If you find
your-self worrying excessively about your trade is it because you are
trading too much? No confidence in the system? Trade light. Keep the
margin down. It’s not about getting rich quick but having the
ability to make a few hundred dollars or a few thousand dollars every
month from the markets from your home. Some traders I know stop
trading when they hit a daily target. So they make $700 and call it a
day. Others trade all day. It’s your choice but if you are in it
for the long term think about taking some time off regularly.
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