So you’ve convinced yourself that you ARE capable of doing this Forex thing, you’re brimming with confidence, eager as hell to get started and now you stand completely naked ( metaphorically speaking hopefully ! ) at the gates of Forexland. What now ?
What do I do now ? First things first, you open a demo account and reduce the providers pretend $50,000 to rubble in no time. No worries, give it another go. Sure enough, the same armageddon that consumed your first demo, sends it’s plague of locusts to similarly destroy your second.
It’s right about now that the first seeds of doubt start creeping into your mind and you even briefly consider giving this up and trying to sell stuff on ebay to make your living.
You can’t understand it. Price of the Euro Dollar was going up, but the very second you hit the “BUY” button, the price went down. So you cancelled that, took your loss and hit the “SELL” button. And guess what ? Damn price went back up again !! Somebody must be watching me ! This is a fix ! It has to be !
Human nature is such, that it is usually AFTER we make a mistake, that we decide we’d better try to LEARN a bit about a subject. So we crank up the internet and stick “learn forex” into the search engine. But the blizzard of information that swamps you in the next 5 minutes only adds to the now growing feeling that ebay is the better option. ( it isn’t, take it from me ! )
All you are looking for is a simple article that says, “Look, hit button A, then button B, wait til you’ve made a profit, then hit button C.” Is that too much to ask ?? If only.
But instead of that, all you can find is some mumbojumbo about MAC something, some guy called Elliot and a whole load of other garbage. And what is this “Trading Strategy” thing that people keep on banging on about. How do you get one of those? More to the point, what IS one of those ? Whatever it is, I’d better get one. I wonder if they do them in red ?
Standing in the doorway of education for the first time is indeed a daunting prospect. Trying to force yourself to take that first step can be a battle all by itself. But the funny thing is it doesn’t really matter which first step you take. Because just as one step leads to another, the first article you read will raise a question in your mind, which in turn will lead you to read another article, then another and another. And then before you are even aware of it, you will have started your education.
But the first step is the most important. No journey begins without taking a first step. And it was by wandering down this path, that finally brought me to discovering the babypips.com web-site and their school of pipsology. Now there ARE other educational web-sites out there, I just happened to like the school of pipsology best.
They’ll explain the ‘Tools’ that are available to you as a trader, that will help you predict which way a price is likely to move, ( Up or Down ). Granted, at the end of the day, it IS still a guessing game, because no-one knows for sure which way a price will go. But because of the nature of forex, with so many of the players using the same “Tools”, you slowly find yourself beginning to make a more ‘educated’ guess, rather than the plain old ‘guess’ you destroyed so many practice accounts with.
But as I began my journey, I kept reading people who spoke of the importance of developing a “Trading Strategy”. And to be honest I still couldn’t get to grips with this. What IS a trading strategy?
Well, from a fellow newbies point of view, a Trading Strategy is simply the combination of the afore mentioned ‘tools’ which you use to decide wether or not to get into a trade. And then when you are in a trade, your Trading Strategy determines how long you stay in it, what your profit target is and how much of your own money you are willing to risk to acheive that target. Simple, it’s just simply the ground rules you set for yourself to determine the way you trade. ( And they only come in red when you’re losing !! )
So let me show you what ‘Tools’, or indicators I use, or, my Trading Strategy. Now remember I am still a newbie myself. I am still learning too. And I hope this image comes up clear enough for you to see. Anyway, here it is. This is typically the chart set up I look at when trying to decide on a trade ;
As you can see my chart is set up as a cancdlestick chart. I’m not getting into how these things work for the benefit of other complete newbies, that is what the school of pipsology is for. But it’s enought to say that these candlesticks, once you’ve read up on how they work, act as indicators for possible future price action.
The coloured lines you see going across the top chart are simple moving averages. I use a 10,20,50,100 and 200 previous period moving averages. And if they are moving in order ( all smaller above higher or smaller below higher ) they indicate to me wether price is likely to be moving up or down.
Also on top chart I have the daily pivot points. They more or less just show me the possible points of support or resistance for that day.
Below the main chart I use the MACD indicator. Again this just more or less shows me if price is in an up move or a down. And once you get into learning about this indicator you’ll know that it also shows wether momentum for that move is still strong or beginning to fade.
And finally below the MACD I have the slow stochastic indicator. This just simply tells me wether the pair is overbought or oversold at that given time, which may indicate a direction change.
I also put a fibonacci on my charts as and when I need it. This acts as another good support and resistance indicator. Again, you can read how to use the Fibonacci tool in the school of pipsology.
Now, complete newbies may be asking why use so many ? Why not just use the one good one? Well the simple answer is there is NO one good one that tells us what is about to happen. We make decisions based on a combination of different indicators showing the SAME possible move. I’d like you to read this extract from Voleo’s reply #167;
“after getting a signal should I enter directly on an engulfing pattern or always wait for a pull back. I see a lot of trades that keep going on after an engulfing signal and never look back. But I also see a lot of trades that just love to reverse exactly after engulfing signals and therefore require a big stop loss to catch eventual winners.”
Just for those who don’t know, an engulfing pattern is a candlestick formation that is, broadly speaking, supposed to indicate a change in price direction, but it isn’t written in stone that price will.
Now I may be jumping the gun here, and I’m sorry if I am, but that sounds to me as though Voleo is basing a trade decision purely on the sign given by one indicator alone. ( My apologies to you Voleo if that is not true ) But no one indicator gives a definitive signal, so it is important that we use a combination of indicators.
So why do I use these particular indicators. Well the answer to that is easy. I’m a newbie. These are more or less the only indicators that I have learned enough about to feel confident using them in an actual trade. I am currently reading up on different indicators, ( eg Elliot wave, Ichimoku ) and as I learn I will test them out on my demo account. I may, or may not end up using them.
I may, in fact, end up going through my entire forex adventure using only the indicators I’m currently using. I don’t know yet. But that is what is meant by developing MY Trading Strategy. I use the indicators mentioned above and I draw support, resistance and trend lines on my charts.
If I’d learned to do these things BEFORE I opened my account, it may not have nose dived so quickly in the beginning.
So learn about the different indicators out there. Even the “Professionals” all swear by different ones. Test some out on your demo account and decide which ones are best for you. Decide on how much of your hard earned cash you are willing to risk on any one trade.
And decide what level of profit your willing to make before your nerves get the better of you and you close your trade just in case the market turns against you. And all of a sudden there you have it. You are now the proud owner of a Trading Strategy. How cool does that sound ??
Incidentally, I believe my chart will appear as a link in this article. If anyone knows how to add the image directly I would be grateful if you could tell me. I tried the ‘add image’ icon but it asked for the web URL of the image and I don’t have one. The image is stored in my documents section.
Anyway sorry if this has bored the more seasoned traders, but I hope it helps the newbies.
I’ll try to get the 3rd article done today but the wife wants to go to the shops and by then the markets will be getting ready to open.
Talk Soon
Trade Well this week.
HoG
