Lessons from the Pros


Starting the New Year Off Right

Hello traders! I must say that 2014 has been a very fun, volatile and informative year for us Forex traders! This week’s newsletter will offer a brief recap of 2014’s trading and offer a few suggestions on how to profit in 2015.

The EURUSD currency pair started off the year at about 1.3750; after hitting a high of about 1.4000 in May, this pair rolled over to our current price of 1.2150. The uptrend that had started in July of 2013 finally ended in May. If you had read a previous article of mine concerning flattening trendlines showing the weakness in a trend, by mid-May you should have been looking for shorting opportunities when trading from a daily chart.

The timing and pattern in the GBPUSD was very similar to the EURUSD; uptrend from July 2013 ended in late July of 2014, and we have been steadily declining ever since. Again, the same pattern of the three flatter trendlines should have warned you in July/August of 2014 that the trend was possibly reversing.

What about a pair that is a bit more commodity focused? The AUDUSD traded a bit differently than the previously mentioned pairs. An uptrend that started in January of 2014 came to an end in September of 2014. Using the above mentioned three flatter trendline rule, a downtrend was indicated starting in September of 2014. The AUDUSD started the year at about .8930, hit a high of about .9500, and is now trading at .8185.

How about the USDJPY? After starting the year at approximately 105.30, this pair was (relatively speaking ) flat until September, when it started a very fast run up to about 121.85, and is now currently trading at 119.20. A trendline that dates all the way back to September of 2012 would have been your indication to go long the USDJPY in August of 2014. By the way, I am intentionally not placing charts in this newsletter hoping you will go to your own charts and find (by yourself!) what I am writing about.

Free WorkshopSince we have already talked a bit about the fun and volatility in a few of the major pairs, where does the informative come in? I hinted at it pretty obviously-read our newsletters! While many who read these are Online Trading Academy students, I know many of you are not. The tidbits of information given in these newsletters is merely a taste of what is actually covered in our on-location classes, as well as our online Extended Learning Track classes. Hope to see you in one soon!

So, on to a few suggestions to make 2015 your most profitable year ever! My first suggestion is to trade in the direction of your longer term trend. I know many of you want to be very active, even daytraders in this market. However, when you realize that the trends in Forex often last for months at a time following the institutions through the forest will be a much less stressful way to trade. When trading from bigger time frames like four hour and daily charts, your actual time spent staring at the screen will be just a few minutes a day. Daytraders often spend several hours at or near their computers. While a good daytrader should make a bit more money over time, that extra time chained to your computer is a trade-off I am not willing to make. Do you live to trade or trade to live? I prefer the second choice. Another way to think about short term vs. longer term trading is this: you could buy at 10, sell at 11; buy at 12, sell at 13; buy at 14 sell at 15; buy at 16 sell at 17; finally buy at 18 and sell at 19. I would rather buy at 10, and manage my winning trade to exit at 19. It is much less effort and much less time spent staring at the screen.

The next suggestion is to have solid risk management rules in place, and don’t break them! One simple rule is to never move your stop in the wrong direction after entering a trade. Very often new traders will use a (for example) supply zone and a moving average intersection to enter a trade. Their stop should go on the other side of this intersection. If price goes against them, they will often move the stop further out, perhaps to the next moving average. This is wrong. What you are actually doing is increasing your risk while not increasing your reward. Once your stop is in a smart location, it stays there until price goes your direction. We only move our stops to get a break even trade, and then to lock in profits – never to increase our original planned small loss!

Another risk management rule would be how to add to a position. While this is covered extensively in our classes, the basic rule is to only add when a trade is going your direction. We don’t add more to losers! Some call this averaging down, dollar cost averaging, etc. When a trade is going against us we want out, not to buy more of it! Now, occasionally this does work; but how many big losses come from doing this repeatedly? Always remember, it only takes a couple of large losses to keep you from being a successful trader. Go back and look at your largest losses. Very often they will be because you averaged down on a losing trade. We are always playing the probabilities here; if you average down against the trend your losses will be large.

So there it is! A brief run-down on where we’ve come from this year, and a few tips to make 2015 even better.

Until next time,

Rick Wright


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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