Hello all,
I became interested in Forex this past spring, when I went to a meetup of traders in my area, having never traded before. Initially I was turned off to FX because I thought it was a sham, but what attracted me to it was the low cost and easy access. I figured I’d give it a shot.
I visited the tutorial on this site, then I read a few books (Currency Trading for Dummies and Daytrading for Dummies are fantastic, I also have Schlossberg and Lien’s books). I read a slew of articles on investopedia. I was also very impressed by Larry Williams, especially what he had to say about money management, and I liked Mark Douglas’s “Trading in the Zone”. I’ve typically avoided forums and chatrooms because after visiting elitetrader its obvious there’s a lot of nonsense on there.
All this time I’ve been accumulating theoretical knowledge, including technical and fundamental analysis, while practicing trading. I’ve gone through the typical mistakes: trading without a solid plan, trading against the trend, adding to a loser, doing the martingale thing, chasing a trend, moving my stops, etc. I’ve started building a discipline, thinking in terms of risk management and statistics, and documenting my trades (with a critique on fundamental, technical, and psychological execution). I’m not yet profitable, but I am beginning to feel better about executing the trades even when they do go bad.
The main problem that I see is that I can’t seem to figure out what strategy to stick with, and how to go about properly developing one. Opinions differ on whether you should daytrade or swing. Swingtrading to me is not very satisfying, each trade takes days to work itself out. Daytrading on a 15 minute chart is interesting, but the risk reward ratio is a challenge when you add commissions and slippage. The closer in on the market you are, the more technicals matter, the further away, the more fundamentals do (the latter seems less predictable to me). The closer in you are, the higher your risk of getting your stops gunned since they are set tighter.
It seems to me the four hour chart could be a good compromise. I’ve decided that the wisest solution is to develop two different tracks for my system development – one is to develop a system that is trend oriented, another that is range oriented. It would also be good to know dollar oriented pairs and non dollar crosses (even though the crosses have a real nasty spread sometimes), so that I’m not constantly married to the dollar.
My thesis is to do one trade a day, no more. My thinking is that this will prevent overtrading and desires to get revenge after a loss, and will give me adequate time to reflect on why things went wrong or succeeded. I would do either a trend oriented trade or a range oriented trade, depending on the more promising opportunity. If I have a 1:1.5 risk reward after commissions and slippage, as long as I am right 50% of the time (10 winners, 10 losers each month), and I risk 2% of my account on each trade, I can average a 10% monthly return, which is what I want to learn to do consistently. I figure with this risk bracket, I would risk 40 pips in pursuit of approximately 70-80 pips.
So the big question here is how did you go about developing your strategies? I’m very weak in programming so it will be some time before I can do automated backtesting. However, I’ve already begun experimenting with manual backtesting in Metatrader. Do you learn one indicator at a time, backtest it, then look for another one for confirmation? What if you’re just price action oriented (i.e. fibonacci)? Where do you get your trading strategy ideas from, and how do you go about developing them? If a book that was published 2 years ago has a strategy, wouldn’t it be no longer valid because its something everyone knows?
I’d appreciate any critique on what I’ve said so far, and any suggestions you might have. I’m really committed to getting this to work and making that 10% a month goal. Thanks in advance!