Top 10 Mistakes Traders Make

Achieving success in futures trading requires avoiding numerous pitfalls as much, or more, than it does seeking out and executing winning trades. In fact, most professional traders will tell you that it's not any specific trading methodologies that make traders successful, but instead it's the overall rules to which those traders strictly adhere that keep them "in the game" long enough to achieve success.

Following are 10 of the more prevalent mistakes I believe traders make in futures trading. This list is in no particular order of importance.

1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn."

2. Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading success boils down to proper money management and not gunning for those highly risky "home-run" type trades that involve too much trading capital at one time.

3. Expectations that are too high, too soon. Beginning futures traders that expect to quit their "day job" and make a good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor--and trading futures is no different. Futures trading is not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be.

4. Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading.

5. Lack of "patience" and "discipline." While these two virtues are over-worked and very often mentioned when determining what unsuccessful traders lack, not many will argue with their merits. Indeed. Don't trade just for the sake of trading or just because you haven't traded for a while. Let those very good trading "set-ups" come to you, and then act upon them in a prudent way. The market will do what the market wants to do--and nobody can force the market's hand.

6. Trading against the trend--or trying to pick tops and bottoms in markets. It's human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that's not at all a proven means of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake.

7. Letting losing positions ride too long. Most successful traders will not sit on a losing position very long at all. They'll set a tight protective stop, and if it's hit they'll take their losses (usually minimal) and then move on to the next potential trading set up. Traders who sit on a losing trade, "hoping" that the market will soon turn around in their favor, are usually doomed.

8. "Over-trading." Trading too many markets at one time is a mistake--especially if you are racking up losses. If trading losses are piling up, it's time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets. It takes keen focus and concentration to be a successful futures trader. Having "too many irons in the fire" at one time is a mistake.

9. Failure to accept complete responsibility for your own actions. When you have a losing trade or are in a losing streak, don't blame your broker or someone else. You are the one who is responsible for your own success or failure in trading. You make the trading decisions. If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny.

10. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different perspective. It is prudent to examine longer-term charts, for that bigger-picture perspective, when contemplating a trade.

Jim Wyckoff
TradingEducation.com

Trade the break-out, trade the bounce, or wait for a perfect signal

Trading the bounce from a recent price reversal that is hitting major support, will more times than not be more reliable than trading the break-outs to new highs. Contrarian trading the bounce tends to create more trades you are already in as the new break-out occurs at the other end; you are then selling as others are looking to buy the new breakout. No point trying to plow a new field when we can follow the lines that we just saw set, the task is so much easier when we are retracing moves that recently happened, the resistance is lighter.

Look for a move back to a main support area (previous session low, main pivot point area, daily Simple Moving Average etc), wait for the market to show that the price has held, look for confirmation from other cross pairs that are moving in the same direction as your proposed trade, and get in before the Perfect Signal has formed. The art of contrarian trading is to not over-leverage the positions, and look to be buying the overall direction of the daily chart trend, after a pull-back rather than as a new break-out.

This leads on to looking for Perfect Signals; how many trades set up that when the Perfect Signal comes, (everything aligns, trade gets taken), they suddenly reverse the moment that you get in? By waiting for too much confirmation or not having a plan in place that allows for disciplined Contrarian Trading a Perfect Signal to enter will most times fail. It has become Perfect by having already moved from a Contrarian bounce off a major price point.

Contrarian Trading; taking bounces off Trend-lines, Pivot Point lines, SMA's, whatever they are that can be justified at a major Price Point, but it is harder to do, needs more discipline, and has far more fear attached to it for new traders than just waiting for the Perfect Signal. However, if it is properly planned and taught it is the easiest way to trade because it is following the overall trend. The 4 Hour and 60 Minute charts are key, Pivot Point lines help dramatically.

The Perfect Signal then becomes to a Contrarian Trader their signal to exit, along with the other Pro traders. Hence the reasons for the reversal just after those looking for the perfect signal have jumped in.

It is Trading with the overall Trend, but only after a pull-back to a pre-determined price point. Trend, discipline, plan, and open mind; Contrarian Trading.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.                                                              By:TheLFB-Forex.com

The Psychological Utility of Technical Analysis

Today I am starting an occasional series on one of the most fascinating and essential topics in currency trading; the interaction between the psychology of the market and the decisions of the individual trader. I hope these observations are useful; reader comments are welcome.

Technical analysis is sometimes studied as if it contains a grain of secret knowledge or portrays an intrinsic truth about currency movements. Often it is said that a specific chart formation will produce a specific price movement.

Technical analysis does nothing of the sort. A chart is a reflection of past prices, nothing more. In itself a graph cannot predict future price movements. A currency does not trade up or down because of a formation on a chart. It moves because market participants make basic assumptions about future price behavior based on the record of past price action. A charted history of price action is the cumulative story of thousands of trading decisions; it is a record of the past behavior of thousands of individual traders.

Price information is meaningful only because trader's decisions give it predictive power. A simple proof of the limited forward intelligence of historical price action is the well attested notion that fundamental developments always trump technical analysis. If the Federal Reserve raises rates unexpectedly or the Chinese Government announces it will no longer buy US Treasuries there is no chart formation that has ever existed that will prevent the dollar from rocketing up in the first instance or plummeting in the second.

Technical analysis does not produce price movement. I state the obvious because in the endless attribution of trading cause and effect to 'the market' it is easy to lose sight of the actual composition of the market--thousands of individual decision makers. The translation mechanism for technical analysis runs from the information contained in a chart, through the assessment of that information by market participants to the trading behavior of those market participants.

Another way to approach this idea is to ask, just who is the 'market' and what is it trying to accomplish every day. It is likely that over 90% of the $3.2 trillion daily volume in the FX market is speculative. That means that everyone in the market from the hedge fund trader with $1 billion under management, to the euro trader on the Deutsche Bank interbank desk to the retail trader in her study, is trying to do exactly the same thing, take home daily trading profits.

Interestingly, the overall worldwide foreign exchange trading volume in 2007, the year of the last survey, increased almost 50% from the prior survey in 2004 of $1.9 trillion daily. The counterparty reporting segment to which retail foreign exchange belongs boosted its share of turnover to 40% from 33% according to Bank for International Settlements in Basel (BIS, 2007) which conducts the tri-annual survey.

To return to my previous point, if every market participant is attempting to do the same thing, namely wring trading profits from the day's activities, how do they all go about it?

The first thing every trader does, in New York, Tokyo, London and in every land in between is to pull up charts and look for trading opportunities. Every trader looking for profit is judging the same charts. Everyone sees the same price history, and everyone identifies the same potentially profitable chart formations. And, in the absence of other factors, the majority of traders will come to the same trading conclusion based on the observed chart formations.

If euro has been in an up channel for two weeks and is approaching the bottom of the channel most traders looking for an opportunity in euro will bet on the continuance of the up trend and the maintenance of the channel. They will place buy orders just above the floor of the channel. And much of the time the charts will have been proven correct, the euro will indeed bounce from the floor of the channel. But it bounces not because, for instance, the ECB is expected to raise rates at some future date, but because of the fit between the goals, information and assumptions of the market's traders.

Traders need profits, all charts contain the same information and all traders operate with similar assumptions about market behavior based on chart formations. If enough traders place their buy orders above the bottom of the channel it becomes likely that the euro will bounce off the floor of the channel and continue the upward channel formation, barring external events of course.

There is powerful self-fulfilling logic in technical analysis, it works, because everyone trading believes it will work and makes their trading decisions accordingly. For a retail trader this knowledge is the most accessible and effective trading strategy that exists.

Joseph Trevisani
Chief Market Analyst

FX Solutions

IMPORTANT NOTICE: These comments are for information purposes only. Past results are not necessarily indicative of future results. Trading Futures, Options on Futures, and Foreign Exchange involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. The information contained on this email does not constitute a solicitation to buy or sell by FX Solutions,LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law.

(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; downtrend lines in red; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)                                                                                                     By:FX Solutions

The Four Letter R-Word

markets are tolerant, averse, or neutral. It is a headline that is bandied about on a regular basis. Quantifying the value of risk, and its forex impact, may be so much harder to do in the trading arena, than reporting each day on whether the herd was charging towards, or away from risk.

In its natural state the financial market has three major attitudes towards risk that models its behavior and actions throughout each of the global trading session. The three are; risk aversion, risk tolerance and risk-neutral. Headlines overplay the four letter Risk word, it should be used sparingly as daily risk levels do not reflect the big picture of fair value on global risk, and its forex implications.

Aversion Phase:

Risk-aversion is characterized by investors selling assets in times of global contraction that are considered risky, and swapping them for the safety of the bond market, mainly U.S. Treasuries. Risk-aversion can be seen relatively easily; commodities decline (global commodities are priced in Usd values, and as such create a short commodity/Long dollar move), as investors consider that consumption will slow, while S&P futures also head lower at a sustainable pace.

In the currency market, risk-aversion strengthens the dollar, as investor sell foreign denominated assets to buy U.S. Treasuries. In this period, higher yielding currencies (those with a higher overnight, or ten year note rate) are the ones being sold the most as the Usd is bought.

Tolerant Phase:

The risk-tolerance phase is seen when Treasuries and bonds are sold as investors look for higher yields in a long-term play that reflects a confidence that the global economy is expanding. In periods of relative calm and positive macroeconomic reports, traders dilute holdings in the safety of the bond market and invest their capital in stocks, commodities and higher yielding foreign currencies. Usually, bull markets are characterized by risk-tolerant phases and in this period S&P futures and global commodities head higher. Therefore in this period the dollar is sold.

Neutral Phase:

In most cases, risk-neutrality happens when the financial market moves side-ways, unable to push to test support or resistance, and when global fair value on risk is accepted. At this stage the global economy will be hitting its peak, or hitting its trough, in the business cycle phase. This will be characterized by a re-distribution period, as investors shift their assets between the various financial instruments in preparation for the next leg of fair value on risk.

The main difference in the Neutral phase being that the shifts are not only session-by-session, they literally happen hour-by-hour as big players try to make their automated moves without detection. Sentiment is seen to change from one to the other, empowered by the relentless flow of global market trades that trigger as a contingency play, as each individual market accepts risk neutrality, or not.

The sideways moving market tends to be the more volatile as the channels are traded, and fair value sought at each regional market open and close. June through August has been risk tolerant enough to move prices in equities. However, the regional market activity has not been strong enough to attract increasing volume levels to be able to make a stance on risk for the next phase of trade to be confidently called, and therefore the currency markets continue to spin their wheels each day as dollar values are fought over.

Transition Phase:

Looking towards the next three months of trade, tenured forex traders understand that fair value on the Usd, and on risk, will be all about the phase that global business cycle are entering. The stages are; Trough> Expansion> Growth> Peak> Contraction. The five cycles take 10-15 years on average to work through and complete. The U.S. economy however has been completing the cycle in half that time, and that is making Usd long-term valuations harder to reliably plan.

Therefore when in Trough-to-Expansion, or Peak-to-Contraction phases, the market runs on risk neutrality and stocks dominate reads on fair value. This leads to a very high correlation (averaging 90%) between equity trade and Usd movement; stocks go up and Usd goes down.

When we get into the Expansion or Contraction, phase, and either one is in full flow (lasting a 5-8 year period globally, or 2-3 years in the US) risk tolerance takes over, interest rate differentials dominate the valuation of currencies, and stock market correlations reduce (averaging 60%). Fair value on risk and on the Usd becomes all about growth and interest rates.

Fed Fund Phase:

In times of Growth the Usd will increase against those currencies not showing inflation, and/or, higher interest rate outlooks. As and when the Federal Reserve raise overnight interest rates, it will be because of an inflation fear coming from economic expansion, and it will very likely be in a drip-fed manner of slow and steady increments as the attempt to keep the speculative interest on the long side of the Usd at bay.

However, the Usd will then be challenged by regional growth that does not carry the weight of massive debt and current account/trade imbalances. The Usd may never get back to 90.00 on the dollar index if global regions expand at the same pace as America. As in 1972 under President Nixon, it looks as though the U.S. in 2009 has set up Usd devaluation with an over-commitment to Treasury debt that now looks challenging, to say the least.

Weak Dollar Phase:

Coming out of a time of global Contraction and into a period of global Growth (possibly) a strong currency is not what is required, by any region. However, the U.S. looks to be the one region that literally cannot afford a stronger dollar. The insurmountable look to the U.S. Treasury debt numbers leave many to believe that the only way forward with sustainable growth, that has any chance at all of creating expansion numbers over and above the forward obligation to pay interest on the debt mountain, is with a lower value dollar.

Forex traders will be looking again at whether the global economy is prepared to welcome a slimmed down version of the greenback, something that seems a ‘must-have’ for the Federal Reserve. That however can only happen in the current environment with an increasing global equity market, and a boisterous oil market arena that maintains a high level of long speculative interest.

We have to go back to the rule book set in 1972-73 when the last major forex rule was torn up and re-set, to a time that the dollar index was born if we are to gauge the potential in a ever-decreasing Usd value Traders and investors may have to accept that going forward the Usd/Risk link may become eroded as the debt mountain surpasses equity direction as the thing that helps or impedes daily Usd valuations.

Percentage Risk Phase:

If volume hits this market in September, and following the laws of probability the month has a good chance of being negative (Shwartz Stock Market Handbook has it as historically being the worst performing equity month of the year), forex trader eyes will be all about whether the Usd gets bought in the same number as previously seen in the recent Risk Averse periods of trade. If stocks pull back and the Usd does not get bought at a 90% correlated rate, we will have a signal of two things;

Firstly that the market is valuing risk on forward Growth and interest rate differentials. Secondly, that the equity pull-back may be a technical signal that it will find support before making the next leg higher, rather than being the start of an equity collapse.

Risk Tolerance and Interest Rates will be affected by the global business cycle. Whatever the headlines roar about this session being tolerant on risk, or not, we now fully understand that at this pivotal a time, risk will be seen in the percentage correlation between equities and the Usd changing from the current 90% rate.

Forex Trader Phase:

Forex traders will be looking to see that Usd/Chf is moving hard when they place their trades, if not they will be questioning the moves because swissy has become correlated to dollar index moves holding, or not. They will also be looking for oil and S&P futures markets to stay aligned, because in any play in forex, whatever the pair being traded, the Usd does affect the momentum flow.

The Usd affects every major traded cross pair, for example; Eur/Usd x Usd/Jpy = Eur/Jpy. Also, Eur/Usd ÷ Gbp/Usd = Eur/Gbp. The synthetic pairs (no Usd on one side or the other) can only move as a percentage of the change in the major pair moves against the Usd; knowing what the drivers of the Usd are doing allows for targets to be realistically set, and lot size accordingly adjusted.

Getting secondary confirmation from inter-related markets is a must-do for any level forex trader, especially when fair value on risk is so hard to find as global markets transition from Trough to Growth. TheLFB trade team will guide forex traders with updates issued regionally, trade plans that absorb the noise and create stability, signals that track inter-related movements, daily videos that put words into pictures and with constant analysis of sentiment and momentum in the global market.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.                                                                  By:TheLFB-Forex.com

Trading the Dollar With USDX

  The US dollar index (USDX) is an important analytical tool for traders in just about any market. The USDX is actually a futures contract which means that if you have a futures trading account you could trade this instrument like corn, oil, gold or currency futures contracts. However rather than trading the USDX most retail traders use it as way to analyze the relative strength or weakness of the US Dollar in general.

The USDX compares the US dollar (USD) against a basket of other world currencies. This basket represents most of the largest free floating, major currencies in the world on a weighted average basis. The currencies included are the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Each of these currencies are given a weight within the index with the largest weight given to the euro.

The euro is typically half the total weight included in the average the chart for the USDX and will often look like a chart of the USD/EUR futures contract. Spot forex traders will notice that the USDX is very similar to an inverse of the EUR/USD spot forex pair. However, because the USDX includes 6 different currencies it is a better measure of USD strength than any single currency pair including the EUR/USD.

The USDX was established in 1973 with a starting value of 100. That means that if the USDX is measuring less than 100 the USD has lost relative value compared to what it was worth in 1973 and if it is above 100 then the USD is stronger than it was in 1973. Currently the USDX is hovering around 82, which means that it is 18% weaker than its starting value. The dollar has not always been weaker than it was in 1973, the USDX showed a 20% improvement in value in the USD in 2001 and 2002.

The USDX is particularly useful for traders in the bond, currency and gold markets. For example, a strong USD is usually correlated with falling gold prices, which means that gold traders are very interested in a break out on the USDX even though they may not be trading the USD directly. Similarly, global crises often increase demand for the USD as investors seek a shelter from uncertainty. This will drive the value of the USD up and often bond yields will drop. These are just two examples of how the USDX is one more inter-market tool you can use for evaluating capital flows and finding new trading opportunities.

Charts for the USDX on the pairs analysis pages in the forex section of the Learning Markets website but if you are interested in trading the USDX you have two attractive alternatives. First, you can open a futures account. There are futures and options on futures available on the USDX that trade on the New York Board of Trade.

Second you can trade ETFs that track the USDX itself. PowerShares offers two ETF alternatives for trading the index. The first is UUP which invests in long futures contracts on the USDX, which means it will move the same direction as the dollar index. The second is UDN which invests in short futures contracts on the USDX, which means that it will rise in value when the dollar index weakens. If you are bullish the dollar you could buy UUP and if you are bearish the dollar you could buy UDN.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.                                                                  By:TheLFB-Forex.com 

Fap Turbo plus Rivals - Have You Read Regarding the general Forex Robots Global Competition?

The way would you like to go to a website where FAP Turbo and fifteen Forex trading robots are going to be inchglobal pageant trading genuine cash inchgenuine trades? You'll be able to easily perform an Internet look to seek out it. Plus once you are doing, you will be amazed to work out whatever the developers up of this intriguing automaton competition have done.

Or not it's a terribly undeniable plan, really. Uriel Katz, plus a team of Forex traders plus developers as one together to make a website where several Forex trading robots might be when compared in the week a amount taking part in field. His or her goal was once to set upward the general such a lot widespread and very best selling Forex robots in line with their developers' instructions and to possess them industry in.real time operate, plus with completely automatic settings. Afterward, they decided that they might track every Forex mechanical device's job in under converting foodstuff conditions using genuine cash plus genuine accounts. Each Forex mechanical device is managed totally independently plus each 1 has its own freelance measure Forex trading account.

The location encompasses a weekly summary, reviewing the general so much latest trading week. Included is information about the general Forex markets, plus specifics about the wealth trading pairs. The weekly review can also include winners up of the current machine pageant consistent with placement, new equity, equity growth, and all of them-contest equity growth. Also included serves as trading make a remark regarding the overall prevailing robots. The general commentary serves as built to be unbiased, plus targeted solely in the week the relative deserves up of the software systems ending up as tried hostile each other.

The disputes are going to be ongoing, with the general robots sited back into pageant with various settings to improve performances. Because the overall week of December half, 2009 the festival comprises FAP Turbo, Forex Megadroid, Forex Funnel, IvyBot, Forex Lexus, M56 Cyborg EA, Pips Miner, Forex Apocalypse, plus Forex Phantom. These will be consistently high profiting robots plus are often in the overall top competing group. Less than, second robots are going to be conjointly tried inchDemo Accounts so that traders whether beginning or more responsible will know a lot of concerning the way neatly they trade. Plus traders can recommend which favorite robots now not however included be added to the general schedule from current competitors.

You can conjointly compare twenty one robots on the site, plus study nine other brokers. This is more than a valuable assortment from information engineered to teach traders in the general ever- competitive foreign currency trading market. It is not the only site up of its kind, but it is useful plus definitely current.

If you're up to date to Forex trading, there is one page devoted to finding out concerning the overall industry, which included a word list, whatever you'd like to understand concerning placing orders, understanding trading explanations, cash management pointers, and second one helpful knowledge concerning trading systems.

While the Forex-Machine site serves as typically terribly concise and to the point, you're going to find that readily available are advertising links since trading related products, plus should you select, you'll be able to turned into a website member. The advertising serves as kept to a minimum, although, plus every computer competitor serves as provided with fair billing.

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Read more: http://www.articlesbase.com/currency-trading-articles/fap-turbo-plus-rivals-have-you-read-regarding-the-general-forex-robots-global-competition-3596238.html#ixzz14K2G8p9j 
By:rose

Developing your first trading plan

Before we go further, it is important to understand a few basic principles.  In the beginning you will develop a set of very rigid trading rules.  This is important and it's like anything else we learn, we must drill on the fundamentals.  Without it we have no structure and it will be difficult to see or measure results.

You must understand the actual limitations of providing this structure and what it will present on your actual trading results in a live market situation.  The core set of rules are such as to help you absorb and memorize a set of actions so that you could repeat them in a live trade and eventually duplicating them without much thought process involved other than the hard-core/pure analysis of the trade.

Each trade is different and in order to succeed you must allow for flexibility in your trading plan but in the beginning stick to your trading plan.  It is important to understand this concept because it is the only way you can look back and measure your results and identify what needs to be changed if it is not as successful as you want the system to be.

There are many trading strategies available on the Internet.  Some work quite well and others will never work because of who developed them.
Let's take the ones that work for example.

Let's say we have a very successful trader who shares his trading strategy on a forum for free.  He wants nothing in return but simply wants to share his ideas because he comes from the understanding of what it takes to succeed and how hard it was in the beginning.

Someone comes along who was struggling with their trading and begins reading about this trading system that is available for free on the forum.

Immediately without having an open mind is easy to knock holes in a trading system that could actually work for someone else.  The key to remember is if you're going to use a trading system that is developed by someone else, in order for you to get the exact same results you must use a strategy in the exact same manner and not change anything.  Changing the slightest detail will change the results.

It's also important to get a good understanding of how and why this trader came about developing this successful trading system.  The reason this is important to understand his way of thinking is that his goals and expectations of the trade may be different from what you expect to achieve.  You must line up your expectations and your goals accordingly.

Now let's say that you understand some of the principles outlined in his trading system so you decide to use this as a starting point.

I would begin by understanding the limitations you have with time.  
Specifically what trading hours or sessions will you operate?  
Normally is preferred to trade when price is most active during one or two of the busiest trading sessions.

How will you trade when the market opens?  
Do you look for opportunities immediately at the opening bell?  
Or do you prefer to wait patiently until some sort of trend takes place or when it becomes obvious that price will remain inside a consolidation?

Are you comfortable with risking 50, 60 or even 80 pips on a trade?
Is it important to you that you risk no more than 30, 40 or 50 pips?  
And perhaps even less?

Once you've determined your risk tolerance in regards to the number of pips you are willing to lose on a trade, you must identify the opportunities that will support this type of stop loss.  For example if you seek to use a very small stop loss then it is commonly suggested to use a smaller timeframe such as a five-minute or 15 minute chart.  If you are comfortable with risking more on a trade but have a limited amount of time to trade each day and cannot sit in front of the computer then you could perhaps use the one hour, four hour, or daily chart.

Now what type of trading environment do you prefer?
Is it easy for you to see and confirm consolidation?
Or is it easier for you to trade when price breaks out of consolidation and begins a trend?  

Each one of us likes or prefers to see things in a certain way.  Tailor you're trading strategy according to what you like, not what others are doing.  Just use their information as an outline.


Let's start with trading inside of consolidation.
Often times the best trade inside of consolidation are to trade when price reaches the high or the low of that consolidation range.  This would obviously result in some type of reversal or move away from the high or low.  This means we could look for a couple of different candle patterns which would give us a signal.  Candle patterns such as bullish or bearish engulfing candles, evening Star or Morning Star patterns.

Since you have already determined what size of stop you are willing to use on a trade, you can now move forward to determine what timeframe to use.  For example if you are looking to use only a 20 or 25 pip stop loss then I would suggest a five-minute or 15 minute chart, I personally use a strategy similar to this using only a 25 pip stop on a 30 minute chart.

Now take a block of time, several weeks looking at the timeframe you have selected and identify through back testing the consolidation ranges that appear obvious to you.

Notice if you see any repeating patterns, begin with the candle patterns and price first.  Study what you see in the price pane window only, in the beginning.  Do not confuse yourself with an indicator yet.

If you choose to trade inside of consolidation, it is important that you master consolidation and understand how to interpret the different highs and lows in a range bound market.  Consolidation can be a very difficult trading opportunity for many to see.  There are numerous spike highs and spike lows in price which can skew the shape of consolidation and not allow for a clear horizontal support or resistance.

So at this point you understand that you need to study and master consolidation if that is the trading opportunity you prefer.  Now again notice how often your candle pattern/trade signal develops.  Notice if there are changes from opportunity to opportunity in the shape of the pattern itself.  Begin calculating where you would actually enter the trade and notice the pullbacks which would test your stop loss placement.
Does your stop loss level hold?

If you find that using the stop loss level you have selected continues to be hit during your back testing, perhaps switch to a smaller timeframe until you find the right one that suits you.

If this timeframe is sufficient and your trades with the stop loss placement hold, it is time to add an indicator.

For the sake of time I will not review which indicators are best if that is even a possibility, nor will we discuss mistakes in selecting indicators.  For now let's just start off with the indicator you may be most familiar with.

As you add your indicator to the charts go back to the location each trade was signaled and notice the reading in the indicator.  
Does it support your trade and would it help you in confirming your entry and the direction?.

(tip to keep in mind is that there are indicators that will help you with overbought or oversold readings inside of consolidation and it may be best to select one of these since other indicators support signals and a trending environment.)

You now have a basic outline for a trading system.  The next step is to write down in detail exactly when you decide to get into the trade and what needs to happen in order for the trade to be valid.

Now begin to use your trading plan forward in a live market environment.  
Notice if it holds up!
How does it work when there are news releases?

If the trading system appears to be a robust strategy that you feel could produce the profit you are looking for, it's now time to drill on the rules of your trading strategy.  Your next challenge will be to follow your trading plan in its entirety and not deviate from it at all.  Changing anything at this point will change the outcome and you will not have accurate data to analyze.

Commit to trading your plan at least a few weeks and preferably a couple of months with the system.  Obviously if you're not seeing any results from the beginning and it continues to lose you need to ask yourself, are you following the trading plan or changing things yourself at every opportunity?  
Or is the system simply no good?


In the beginning I would recommend developing a forex trading strategy that is technical in nature and does not depend on economic data.

As you develop your trading system and your confidence in it, you can apply other resources to use his confirmation and to measure trader sentiment and trend direction.

Read more: http://www.articlesbase.com/currency-trading-articles/developing-your-first-trading-plan-3597065.html#ixzz14JzikR4c                                                                                                             By:Forex Arthur