Novice Trader FAQ

Beginner Questions
1

There are many question asked frequently by novice traders all of which require the same answer. Please feel free to post any Questions with answers for the benefit of all novices. Please try and keep this as a source of reference for helping.
I will attempt to add an index and useful links to this page as and when time permits

Leverage
#2 ThePhoenix

Timeframes
#2 ThePhoenix
#3 R Carter

Strategy
#2 ThePhoenix

Useful Links

The Trade Quest for some simple explanations

Commonly used Abbreviations
PA - Price Action
DBHLC - Double bar high low close
DBLHC - Double bar low high close

2

Couple of things I see asked over and over by new trader:

  1. Question: “If I a broker gives me less available leverage isn’t that less risk?” Or, “I want to start an account with 1:1 leverage so it’s less risky.”

Answer: You want more leverage. Why because that requires less in your account to cover the trade. Leverage doesn’t effect risk unless you overleverage and abuse it. You can still risk only 1% of your account with 1:1000 leverage. YOU manage and plan risk with lot size and stop loss, NOT leverage.

  1. Question: " Should I trade on 1-15 minute time frames, is it easy or where new traders should start, and I don’t think I have the account to fund long term trading."

Answer: It’s the exact opposite. Scalping for small pips on small time frames is a recipe for losing your account. Smaller time frames are noise compared to larger time frames. Also , small stops (IMO anything under 50 pips) are rediculous and asking to be stopped regardles if you are in the right direction.

Why? When you enter a trade you are automatically negative the spread. So, if you have a 20 pip SL and a 5 pip spread you really have, 15 pip SL when you enter. From entry price only has to go against you 15 pips.

New traders should trade 4 hour and up time frames. They are far more predicatable and have more margin for error, provided you use appropropriately wide stops.

Trading larger time frames = more pips, more profit and less work and less watching charts. Do you want to work hard and make less or even break even or lose,? because that’s what happens to the vast majority of scalpers. Especially new traders.

There is a reason that veteran traders trend trade and trade longer time frames. I’ts easier and more profitable and far easier to stay consistent.

Question: What is the best trading strategy/method.

Answer: There are many different methods with many different entry and exit criteria. Any method should have a good balance of: Win/loss ratio, Risk/reward ratio & most importantly risk / money managment.

BUT, the best methods IMO are some form of trend trading. Why? If you can get in a trend and ride it, for days weeks or even months, until your method invalidates the trend you can possibly end up with 1000’s of pips from ONE trade.

3

Just like to throw my hat in with ThePhoenix excellent post… such a shame 95% wont take his advise. :rolleyes:

Another reason for not trading the 1m, 5m & 15m TF charts. Say you place 10 trades a day with an average 3 pip spread. Thats 150 pips a week out of your potential profit or 150 pips plus your losses! Its just no way to trade.

4

There is a reason why the same questions are asked repeatedly…

5

That’d also be because of the constant flow of fresh meat lol

Well I wish I had found that sort of advice when I first started out - I’ve been googling about to see whether there’s much of a stance against scalping and apart a sole article the majority of results were ‘stop scalping for the day’ (amidst the petitions to stop scalping animals)

I agree that scalping is a bad idea but I don’t really get that particular reason; if you were to just do 1 trade that amounted to the total scalping profit made by the 50 trades the only real difference would be that the broker is 147 pips less rich. Unless you were scalping in the same direction as the 1 trade at worse positions every time you aren’t really losing out on anything right? It’s not like you were entitled to the 3 pips spread in the first place lol

6

i just feel if i try the much longer timeframe say 4 hours and I put a stop at 40 pips. If I am wrong, I am done 40 pips. On 1 day 3 major markets open, and if you get caught by a bad news on 1, you are done. Does not happen with short term trades though (less than 1 hour)

Yes scalping is bad, because it is noise. But events happen every hour. I just feel my personality is not for swing trading or holding the trade for more than 1 hour. The last time I tried opening a trade near the end of the US session, and when I came back at the tokyo session, my stop already got hit. But the charts show a strong uptrend when I opened it. So something happened in the tokyo session that I wasn’t aware of.

7

I live to scalp.
I learned early on to be closed with all trades by the end of the US trading day. The potential for disaster is there when the market closes, and the Asian session begins. Weekends are especially deadly.

Great thread idea, and I nominate it for a sticky.

8

The point I was making is the more trades the more spread that has to be paid. In my example 150 pips a week just to cover the spread. Any trader who makes 150 pips a week never mind the spread will compound up their account to very big money in no time.

Scalping is the hardest trading there is as your not trading PA trend just the ‘noise’ and therefore extremly difficult to beat the odds. Some can do it, most cant. Cant think of a more sure fire way to blow your account.

9

True!

Answer: It’s the exact opposite.

True! And my EAs in backtest show: I would rather set the stops even wider. There is not only the spread. The noise with EURUSD is huge! My EAs running in H4 show best results with some SLs set to as wide as 300 pips, depending on strategy. My best EA even uses stoplosses until 150 pips. I have a maxrisk parameter in my EAs and that is a good indicator. If I set that below 150, the profit shrinks and the losses develop.

That’s why and where I’d like to add one suggestion: Newbies ask if they can start with a few bucks like 50 usd or so in a mini account. That’s in my opinion the sure and fast path to a margin call or too many losses, because the trades can’t breathe. They hit a stop loss too early and the chances are gone then.

BUT, the best methods IMO are some form of trend trading.

True, too.

Just my opinion. :smiley:

10

I can. Close your eyes and hit the order button.

11

In some cases, that might actually make more pips…

12

In terms of probability thats akin to flipping a coin. Flip it enough times and statistically it works out to a 50/50 chance of being right.

In FX the probability however is shifted or weighted in your favour when PA is in the over bought/ sold area and you press the right up or down button on the keyboard. :smiley:

13

LOL You are right without a doubt. My comment was more tongue in cheek. I guess I should have used a smiley:p

I’ve just seen some instances when the decision making was so bad, it would be better to have been random.

14

I’d appreciate if you could fold out that abbreviation. Thanks in advance!

Important question: Do you have any statistical evidence for a technical signal which is better than flipping a coin? I mean, backtesting over time, trading journal, whatever you prefer. I am seeking for one. Didn’t find one until now.

15

PA is price action.

16

Thanks a lot, jaquille!

17

A sticky for this thread wouldn’t be a bad idea for newcomers imo, kockneerebel could update his first post to keep things easy to read

18

Thats a big question. :slight_smile: Depends what TF (time frame) chart your working.

If youre trading the smaller TF charts 5m, 15 and 1h then you need to use MA’s (moving averages) that are not too fast in order not to give false signals or at least faster indicators set to longer periods. When using 4h, day, week TF charts the faster the ma the better.

I trade the daily chart and use 2 LWMA (Linear Weighted Moving Average) and 2 Regression Line. These two are the fastest of the Moving Averages. I use these two as primary indicators in an overall bigger strat.

Sorry didnt answer your question properly. Yes my set up produces way better then a 50/50 flip of a coin. :smiley:

19

the 50/50 coin toss:
I did an analysis in Excel of 1h candles some time ago, GBP/USD as I recall. The strategy was to open a buy order at the candle open and exit the order at the candle close. Using a year’s worth of 1h candles. The results were pretty close to 50/50. Less than that when taking into account the spread of course. with a bit of a bias based on an overall long term trend which could be seen visually by looking at the chart.

That’s kind of off topic but since it was mentioned, thought I’d toss that in there. :slight_smile:

This suggests in interesting probability based trading idea if you think about it…

20

Ah… now were getting there. :slight_smile: Now try it with daily candles Mike with some advanced MA tweeking. :wink: