Following on from my article of two weeks ago, I join you on this piece to provide the next six steps of my 12 new rules for our trade plan of 2014. I would like to take this opportunity to thank the many people who sent me messages about how they enjoyed part one of the article and were requesting part two. I know sometimes it’s frustrating to wait for something, but you do get used to it as a trader. Patience always pays in my experience! In the first half of the article, I focused on some key elements to get the ball rolling, such as knowing your entries, your targets and reasons for taking a trade in the first place. I would like to keep this guide as practical as possible and in this follow-up second part, let’s waste no time in getting straight to the points:
7 – Trade Price not Indicators
Regular readers of my articles will know that here at Online Trading Academy, we encourage our students to focus on price first and foremost using our core strategy of recognizing institutional supply and demand on a price chart. Many new students come to our Academy having spent a lot of time reading indicators and chart patterns. One of the dangers of relying too much on these secondary tools, is that they need price to give us a signal. This will always result in a lag and delay in the signal itself, getting the Trader into the position far too late and affecting the overall risk and potential reward outcomes.
By focusing on price primarily, we will always get the very best signals at the earliest possible times. What better way to read the market them by what the price is telling us as opposed to a technical indicator? If you know how to read price on a chart, you will understand how to recognise the true footprints of the major market players, mainly the institutions. As much as they would like to hide their trading and market activities, they struggle because of the patterns that they create due to the imbalances of their order size and the retail customers order size. Know this and you will know exactly where to get into the market and this is only something you will know by studying price not a technical tool.
8 – Limit your use of Technical Indicators
Please don’t take my previous point as a suggestion that I hate all technical indicators! This couldn’t be actually further from the truth. I believe that technical indicators, if used correctly are a very powerful tool to help the decision making process and filter opportunities out when presented with too much. Even when relying on supply and demand levels alone we can often be faced with one too many trades. This is why we employ Odds Enhancers in our curriculum, so as to help students come to a more objective and rule-based decision about which opportunities they are going to take.
Technical indicators such as Moving Averages, Bollinger Bands® and other oscillators, can all be used in the decision-making process, so as to give some extra support to the supply or demand level opportunities themselves. However as I previously mentioned, the technical indicator should not be the primary decision-making tool and should be used only after the trader has found a good quality level which they would trade from alone. My suggestion however, is if you are going to employ technical indicators, just choose one or two to aid you in your analysis process. This way there will be little danger of focusing more on the technical indicators rather than the price itself. Also occasionally traders can wait for too many signals crossed too many indicators, often resulting in missing the trade altogether when waiting for their “perfect set up”.
9 – Focus on a few time frames
This point is short and simple: less is more is the rule. If you look at a different time frames when trading in particular currency pair, you will one into the danger of never being able to make a decision. As traders we need to be able to make decisions on the spot and with clear rule-based objectivity. The more we look at the more dangerous areas of over analyzing the opportunity and never taking the actual trade itself. This is a common mistake that a vast majority of new traders tend to make. Multiple time frame analysis is a key skill which needs to be developed if you are to ever achieve overall consistency in your currency trading.
I would suggest looking at no more than three or a maximum of four time frames when you’re trading, so as to give you a broad picture of the trend and the overall market direction. Using any more than this could potentially result in you forcing a trade, meaning that you flick through multiple charts to find an opportunity because you’re keener to take a trade, rather than wait for the right trade.
10 – Keep a Trade Journal
This one always seems obvious when I tell students about how important it is to keep a trade journal but it’s surprising how many people have never thought about it before I mention it. Let’s face it, we all come to the market wanting to trade, to get into the action as soon as possible an attempt to make money. The last thing we really think about is journaling and tracking our actions themselves. Well here is some news for you: you need to record your activity in your currency trading. How can you ever analyze what you been doing, if you don’t record what you been doing? The only way we can learn about what works and what doesn’t work, is by keeping a journal of what our activities have been and then learning from this. Start that journal now and track your performance from this day forward.
11 – Don’t become Isolated
Trading is a lonely endeavor. Most new traders love the idea of making money on their own terms but forget that this also comes with the disadvantage of being one of the most lonely activities one could ever embark upon. At least when you go to work you get to have a break and communicate with other human beings. When you’re sitting at home in front of a computer screen, typically the only person you have to talk to is yourself and let’s be honest, talking to our self when trading usually is a bad thing.
People need people, that’s a fact. Here in the Academy we’re fortunate enough to have a true family environment within our worldwide campuses, our XLT programs and Mastermind Community, which provides our students (and instructors) with the level of contact that they need to be the most successful traders possible. Sharing your goals with individuals on the same path as yourself will always promote success. Put yourself in a group with other like-minded individuals and emulate the success of people who are good at what they do. Going it alone is not always the best course of action.
12 – Hold yourself accountable at all times
The final point is accountability. I am fortunate to have come from a performance coaching background before becoming a trader and instructor. This gave me the advantage of understanding what makes me tick as a human being and how my belief system plays such an important role in the goals I set myself and the results which I achieve. As people, we are responsible for our own lives and the decisions which we make. Trading is a decision making process at its core foundation and requires us as market speculators to take responsibility for the choices we make to buy, sell and manage our risk. We all need to understand our success is down to us and us alone. After all, we are only trading what we believe about the markets and what we believe is true, isn’t it?
Be well and profitable,