Becoming competent at forex trading

[djc0]

A question to the more experienced: from what you know *now* about forex, how would you have approached it when you first began?

For example, from reading the forums it seems to me that it's best to focus on just one (zero? two?) indicator(s) (what's best for beginners in your opinion? does it make a difference?) and spend lots of time learning candlestick patterns. S/R levels are essential to develop an intuition of when to enter/exit trades (what's best for S/R - horizontal lines based on previous S/R? pivot points? some people appear to use EMA's? drawing diagonal channels? others?).

Money management is key.

I like stormin_norman's (perhaps common) method to fix your losses at a percent of your total funds (1-5%) and set your entry just above a support level, THEN decide your lot size. Then you always know the maximum amount that you can lose regardless of how bad your trade may be (hopefully not!).

I'm happy to demo for many months (3-6+), at least until i feel i'm ready before putting any money on the table. I'm "trading" with FXgame right now (mac user, need to install parallels or crossover to use mt4 i believe).

I have a background in physics (astrophysics) and hence am used to looking at stochastic/crappy data and trying to make sense of it. Forgetting about the whole "trying to make money" part, i'm actually having a lot of fun!

 

[mazzatelli]

I have a background in physics (astrophysics) and hence am used to looking at stochastic/crappy data and trying to make sense of it.

I'd suggest a heuristic approach would be the best practice.

 

[Stormin_Norman]

Forgetting about the whole "trying to make money" part, i'm actually having a lot of fun!

good attitude. you have to see it as a game, not as money - or the psychology of trading gets hard.

as for indicators; use any that you can make a story of. if you can tell a little tale of how the indicator works, and what it tells you about the market then i think its a good one.

once you know an indicator's story, you can add 2 or 3 of them together and form a whole story, ie a system.

i see a lot of systems just willy nilly shoved together with any indicators lying around. to me a system should tell a story. indicators should each tell part of a story - and not the same part over and over.

ie - EMA tells you which way the market is heading
stoch tells you when the market is overbought or oversold
support/resistance tells you where significent buying/selling is occuring

put the three stories together. that's a system.

what computer coding do you know?

 

[djc0]

Thanks. I've found that, even though i know what each indicator does, that my eyes stop following the candlesticks and instead all the lines on my screen when i put too many up, which just confuses me. Everyone says keep it simple - hard to do though at the beginning!

Looking for the story makes sense. I guess understanding that story comes with experience.

what computer coding do you know?

bash/csh scripting, C/C++, Fortran (ugh!), some astro-specific data analysis languages.

 

[alwaysLearning]

Candle sticks are very important but beyond that, study some basic patterns.

1. Double Top (really learn this)
2. Double Bottom (really learn this as well)
3. Head and Shoulders

Look at some basic break out strategies around:

4. Symmetric triangle breakouts.
5. Ascending triangle patterns
6. Descending triangle patterns.

None of these patterns are necessarily going to work for you. But you should be aware of what they are and how they work. You may be able to build a system around something like that if you combine with candle sticks and other unique patterns that you observe.

7. You should be looking at the forex factory calendar for big events such as interest rate announcements or NFP being released. Or any major event that is likely to move the markets.

http://www.forexfactory.com/calendar.php

8. Study the Daily Pivot points, they IMO are critical levels that you should be aware of at all times.
http://www.actionforex.com/technical-analysis/pivot-points/pivot-points-summary-200603205734/

Think about how markets move. They are either trending, or ranging. So you need a way to figure out what it is doing at any given moment and decide whether or not to be in a trade or to stay out.

I guess, what I'm saying is that you need experience. Study how price behaves around areas of support and resistance.

Very important is to switch to very low time frames and demo trade of them. Go to the 5min charts for example. Make lots of trades on your demo account. Study your own patterns that you see yourself and test them.

Do lots of back testing, even if it is manual.

Read about the structure of forex. It's important to know who the big players are and try to think about what they want.

Learn about the 'carry trade'. That is critical to know about.

Look at how markets inter-relate. It's useful to have an understanding about what happens when gold and oil move up/down and how they impact on currency.

Money management is absolutely critical which you already know about.
Risk to reward ratios are very important to be mindful of as well as just determining your expectancy.

To summerise:
1. keep money mangement in mind at all times. (never risk more than 1% per trade. Always try to have a decent risk to reward ratio where you risk less for for a larger potential reward)
2. Look at basic technical analysis including trendlines, and basic patterns, such as double top, double bottom.
3. Learn about the carry trade.
4. Be aware of major news events using the calander.
5. Be aware of pivot points (daily pivots especially)
6. You should have a good understanding of the basic candle patterns
7. Initially make certain that you trade on shorter time frames (5min) so that you can accelerate your education. Waiting for days or weeks to look for patterns is just not that efficient.
8. Look to understand the structure of forex and why there are different tiers etc and what role central banks have for currency.
9. Ignore CNBC and Bloomberg commentators.
10. Understand in basic terms how correlations work between currencies. e.g. If EUR/USD goes up, you should expect the USD/CHF to go down

There is lots more to do but those are just some basics that you should be mindful of. In the end you need to put a lot of effort in and come up with your own unique patterns and strategies and test them.

I have been studying hard since July last year (began from knowing nothing). Only now do I believe that I'm making some decent progress towards becoming profitable. (mind you I've learnt a lot along the way that has been incredibly useful to getting me to this stage)

Wishing you well.
AlwaysLearning

 

[Wysiwyg]

My personal experience with FX trading is about 2 years and I must have tripped (or been tripped ) in every way.

Just with the indicators ....they don`t yell buy/sell .... they only `are` after they have become. For example a pair can remain over-bought/over-sold for a long time, support/resistance lines become that after they have become support/resistance. Good guides at best.

Also anonymous trading works better! Peace of mind that no bastard is eyeballing your stop levels.

p.s. FX trading is the highest risk and there is many newby and seasoned carcasses strewn along the erratic path. I don`t know anyone in real life who trades FX. Only my cyber buddies here.

 

[caribean]

It will take time, lots of it, before you find what suits you, you'll know you found the way when you starting to tell yourself: why am i wasting time looking at all this crap? and you'll realise you allready have the method, and are better off working with what you have, and know quite well.
Everything works, and everything doesn't
Indicators, moving averages, bollinger bands, whatever, if you've found a way to use them, then they work!
It took me four years, (i'm still learning) and i'm just the average guy, someone like you could take a lot less, nothing is quaranteed.
My biggest mistake was trying to run before i can walk, did not want to waste my time with small bucks..when i could be a millionaire in two months !
lol
Good luck with your journey.

 

[fapturbo]

Daily Pivot Points using NY Close

Round Numbers every 50 Pips, Example 1.4250 1.4300 1.4350, natural levels of Support Resistance.

Momentum + Direction

That's about it.

 

[Robshan]

Starting off (a couple of months ago) knowing absolutely nothing about forex, charts, strategies etc. I found this site very helpful:

babypips.com/school/

 

[--B--]

ive been fooling around with OANDA's FXgame for a while but have never figured out how to get the chart to display in bar or candle form rather than the standard line.

anyone know if this is possible?

 

[djc0]

ive been fooling around with OANDA's FXgame for a while but have never figured out how to get the chart to display in bar or candle form rather than the standard line.

anyone know if this is possible?

See the attached screenshot where i've changed the drop down menu to candlestick ...

 

[--B--]

lol thanks djc0

i cannot believe i didnt see that myself.

cheers.

 

[Tradesurfer]

Developing a system as mentioned before is key.

One really important thing for me was becoming comfortable with taking small losses. Second: The ability to stay with trends and not close out winning positions while they are still running.

Many beginning traders cut their winners and let their losses run.

This could apply to any market/

 

[djc0]

Second: The ability to stay with trends and not close out winning positions while they are still running.

Many beginning traders cut their winners and let their losses run./

This is a hard one to know. I've been looking for obvious S/R to identify where to exit but it's often not clear. Being too conservative means cutting your winners, but being too ambitious means risking a turn that may result in +ve pips turning into -ve ones. Much less desirable IMHO!

I've had this happen a few times (didn't hit the level i was expecting and turned). I guess this is where experience becomes invaluable. ... and not trading against the longer-term trend!

 

[Kryzz]

Good to keep track of all your trades too, ie, trading journal. I take screen shots and make relevant notes of my completed trades and will look back and see how i could have made the trade better etc. I'm still very much a novice, even doing this for a short period i have learnt a lot already. Reviewing very important imo

 

[havaiana]

If i could go back the first thing i would have studied is the microstructure of the market. All the beginners info out there is backwards. We study reactions without any knowledge of the causes.

I've heard traders on other forums say the who what and why doesn't matter if you are getting the desired result but i disagree. I think sometimes people stumble upon an inefficiency without knowing the cause, but what happens if the market adapts and the that inefficiency dries up

I think it's also important from a learning perspective. It's alot easier to understand and retain information when you know the background.
I found an article about this http://www.supermemo.com/articles/20rules.htm (pretty crap article but gets the point across)

As a beginner it's natural to look for shortcuts and there are many people out there happy to help us become market liquidity

"A question to the more experienced..." I'm not a part of this category yet so take my adive with a grain of salt

 

[Wysiwyg]

I think sometimes people stumble upon an inefficiency without knowing the cause, but what happens if the market adapts and the that inefficiency dries up

A practical example might be an Expert Advisor (auto-trader) that is very profitable with the programmed buying and selling of currency pairs. The host broker takes note of what makes the EA profitable and duly informs the market. Can`t have retail traders doubling their accounts every month.

 

[faith_fx]

Money management and state of mind is the most important part. Having a strategy that works is the first hurdle to pass.

 

[Mr J]

and not trading against the longer-term trend!

We are almost always trading with and against many trends.

Money management and state of mind is the most important part.

Without an edge, one can't profit.

 

[lukeaye]

Without an edge, one can't profit.

If you have correct money management, positions sizing etc, then you have an ege, a 50/50 chance is all you require to profit.

Have a mechanical/discretionary strategy which gives a greater expectancy then 50% is an extra edge.