Lessons from the Pros


Your Flexible Trading Plan

Hello traders! This week’s newsletter comes to you from chilly Durango, Colorado where I’ll be hanging out for the next month or so, before my next class. Our topic this week is the need to have flexibility in your trading plan based on market conditions.

So, by now you may have heard that we consider a trading plan to be one of the most important factors in a trader’s success; but having the discipline to follow the plan is just as important! Helping with your discipline/psychology is Dr. Woody Johnson’s specialty. Here, I’ll show you an adjustment you can make to your trading plan involving timeframes that can offer a few more trading opportunities.

Different Timeframes Offer Different Opportunities

First of all, we must understand that the market moves in 3 directions: up, down and sideways. However, depending on what timeframe you use to make trading decisions, at any one time different traders will have different views of the market. Tweet: Depending on what timeframe you use to make trading decisions, at any one time different traders will have different views of the market. https://ctt.ec/Vmsf8+

An example would be to look at the monthly chart for the EURUSD from December 2016 to April 2017. This time period is clearly a sideways market.

Monthly Forex trading chart of the EURUSD showing a sideways trend.

When dropping down to a 4-hour chart, these few months have some very clear up and downtrends to trade.

4 hour forex trading chart showing multiple trading opportunities

When looking at a 4-hour chart on the EURUSD from late November 28 to early December 20, we have a clear sideways trend.

4 hour FX chart of the EURUSD showing a sideways trend

When moving down to a 30-minute chart on this same period of time, there are a couple of relatively easy trades inside this smaller timeframe from up and downtrends. There are thousands of examples like these on the charts, I encourage you to go find a few on your own!

30 minute FX chart of the EURUSD showing a lot of movement in the market

Here at Online Trading Academy, we usually use 3 timeframes for our trading: the largest is for defining where the large institutions are placing their buy (demand) and sell (supply) orders. Our next timeframe down is for defining the trend in between those larger supply and demand zones, and the smallest timeframe is where we time our entries to engage in the trend. So, what should we do when the trend isn’t clear?

The answer should be a bit obvious: change the time frames you are trading on! For example, if a weekly/daily/four-hour chart system isn’t easy to pick trades from, go down to the next series of times lower. Daily/four-hour/one-hour. And if that isn’t clear? Four-hour/one-hour/15 minute. This way your STRATEGY remains the same, just your timeframes change.

Free Trading WorkshopPersonally, I prefer longer timeframes as the amount of time spent looking at charts is much less. Imagine using a 10 minute/2 minute/30 second strategy! A lot of time would be spent staring at the screen trying to squeeze out a handful of pips. One of the more memorable phrases in the world of trading is, “We get paid on the quality of our trades, not the quantity.” Would you rather do 4 trades a week to get 100 pips, or 400 trades a week to get 150 pips? I certainly don’t mind giving up a few pips to significantly decrease the amount of time I have to spend looking at charts!

The entire point of this article is to express the need for having a trading plan, yet also having the flexibility of adjusting a part of your plan based on market conditions, on occasion. This is where discipline comes into play. Having patience and waiting on trades that fit your plan is many times the right move. After all, if you are adjusting your timeframes every other trade, do you really have a complete trade plan to begin with? However, if the market really isn’t offering you any opportunities in your preferred timeframe, then this slight adjustment might be just what you need.

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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