Questions about my basic system

I’ve just started with forex trading and today composed my first attempt at a system. I don’t have questions per-se about the system itself but about trading with a system in general.

I notice that the system I created lies heavily on RSI. The way RSI is used in my system is mainly a signal to start watching closer and compare with the BBands and MACD indicator also. While looking back however, throughout a day I see only a few (maybe 2 or 3) instances where I would trade based on my system.

My main questions is: Is this too few trades when risking no more than 2% of equity on the trade?

2-3 opportunities per day is what you want. (I look for even less)

Any more than that and a larger percentage of them will be fakeouts and losses and generally just noise.

BTW… your system is probably crap (just trying to be helpful here). 95% lose and 95% use rsi, macd, etc for their signals. If you want to use that mess (which is completely unnecessary), you need to figure out when you can catch them with their pants down. A simple crossover strategy will have you holding the bag every time. If you want more info I will explain further, otherwise disregard.

well , that depend on what kind of system ,is it a scalping system? how many pips you set the profit target?, but if it is not scalping than i think it is more than enough.

Yeah I’m still new at this I’d love to know more actually. I’ll post what I’ve got on my system so far so you can see it too.

Since I’m trading on the 1M Chart and I like the idea of scalping I based the system on small gains between the 5-10 pip range for T/P(1) and if the trend is strong a T/P(2) or 10 more pips.

For your reference here’s what I’ve got for my system (keep in mind I just finished the school here and know nothing more than the basic indicators described):

Indicators(5M):
-RSI(14)
-BBands(20)
-MACD(12,26,9)
Indicators(1M):
-BBands(20)

Long(Buy) Only If:
1. RSI oversold(<30)
*Zoom to 1M chart
2. Breakout on lowest BBand
3. MACD Crossover(fast MA crosses slow MA going UP)
*Look for entry candle

Short(Sell) Only If:
1. RSI overbought(>70)
*Zoom to 1M chart
2. Breakout on upper BBand
3. MACD crossover(fast MA crosses slow MA going DOWN)
*Look for entry candle

I’m interested in your input as looking back on some other opportunities in charts I saw this system to be successful. Thanks!

i agree, technical indicators are a load of bull

focus on learning and being able to spot and plot support,resistance and trendlines

then familiarise yourself with all the chart and candlestick patterns

start trading with the larger timeframes and dont worry “too” much about getting perfect entries

only 2 - 3 trades a day is fine risking 2% of your account, use a risk: reward ratio of at least 1 : 1.5

using the above: 2 successful and 1 losing trade would result in a 4% daily increase in equity, when compounding this will bring you substantial amounts of money over time

lee :slight_smile:

Would you reccommend starting on the longer timeframes as better for a beginner/newbie? I like the shorter timeframes mainly for the fact I see the price move and keep interest I guess you can say. Longer timeframes to me seem like (because I’ll only start with very little capital), I’d like to do a bit more work to seem more ‘involved’ rather than a trade a day or a few days sort of thing. Which might not be the right mentality because returns could be equal or greater, I just never liked the style as much as something faster paced.

Ok, lets start with one thing at a time.

In my opinion to be profitable at scalping forex you need to a trading GOD. Since you’re a newbie then you are not in fact a trading GOD so stick with a longer time frame.

The reason is because the person taking the other side of your trade is your BROKER. If you were trading stocks or futures then everything goes through an exchange and all the broker cares about is getting that commission.

In forex if you win he loses since he is on the other side of the trade so it’s in HIS best interest that YOU lose. Since they can see your trade and your stop and provide you with their version of the chart… you have no shot.

So to me scalping FOREX is the equivalent of playing poker against Phil Ivey with your cards face up.

If the broker manipulates the market (not saying they do or don’t) it can only be for a short second so if you trade on a larger time frame this shouldn’t be much of a concern.

I am not new to trading but I am new to forex so if I am wrong about any of this others can correct me.

Now, let me ask you this question. Do you know why you are attracted to scalping? Why does that method feel the most appealing?

Because it’s the most comfortable!!!

You get in a trade, you don’t know exactly what you are doing, you hold it a minute or so and you make a little bit or you lose a little bit. No harm either way. It’s death by 1000 cuts because that spread is eventually going to chop your ass to pieces.

I will get to the strategy in a little bit…

Comment if you like.

Do you want to make money, be entertained, or be a pencil pusher? Work doesn’t = $$$ in trading.

Use the time frame that is the most profitable. (Hint: It probably won’t be scalping)

I see where you’re coming from and yep, those spreads kick my behind pretty hard.

At the same time however I remember reading another thread composed by pip-siphon who said he’s been trading quite some time. His methods of scalping were in the range of anywhere between 10 - 200 trades in a few hours. Now even he mentioned its the exact opposite of what has been considered the safe and most common way of trading and I’ve read that too, however the appeal of moving with the market also attracts me.

Thank you for the input I’d like to hear more about what I’ve got so far! I’m open to all ideas :slight_smile:

EDIT: And AH one more thing, I never liked the sound of rollover charge or anything because that’s another capital/profit eater. Which is why when I started looking where to trade or which timeframe, shorter seemed better.

He’s right. It is “safer”. If their were zero transaction costs (and a spread IS a transaction cost just like a commission) then scalping would probably be the best way to go. You have small stops small targets and can get out fast if things go wrong. If you trade on a longer time frame than that then most of the time your stops will be bigger… obviously. I think that is what he means by that.

Now, just because you are supposed to risk 2% a trade doesn’t mean you have to. Also, your stop doesn’t have to be just 10 pips. It can be 100 if you want. In fact it should never be a set amount it should be based on the chart and each trade is different in that regard.

I am sure some can scalp and do it well and some will disagree with me but I definately wouldn’t start out with that. Trading is hard, scalping stocks/futures is harder, and scalping forex is hardest. (in my opion of course :D)

Once I got over the thought that I should be “working” while trading I realized scalping was stupid and started swing trading.

ok on the topic of scalping

simply put your not READY for it yet

all great scalpers have extensive knowledge of the market, have years of experience watching it and know how specific pairs move and behave around certain prices, times of day,etc.

nearly all newbies try their hand at scalping and get burnt.

start with trading larger timeframes like the 1 and 4 hourly, this will give you a better feel for the market and once you can be consistantly profitable, stick to your tp’s and stops, use good money management and risk: reward ratio your ready for the next step

after achieving this you can then begin to scalp your swing trades as i like to call it, what i mean by this is enter your medium term swing trade and once in profit start looking to exit on the retracements, then get back in at a better price grabbing yourself a few extra pips, but beware do not try and scalp both up and down on the same swing trade! exit and then re-enter in the original direction, this allows you to get a better feel for scalping whilst using your swing trade as a safety net

hope this helps

lee :slight_smile:

Here’s a saviour question before I succumb to peer pressure (haha)…

Is it still considered scalping when trading on 5M or 15M charts (1M to plant best entry) while using a system? I understand larger time-frames also have a larger pip range than any shorter TF chart so is this where the difference lies?

I agree w/ what Profitforextrader said 100%. He may have explained it better than I did.

I wouldn’t worry about what scalping is or isn’t. I would find a time frame that suites your personality and coincides with your schedule. Slow the chart down. Find something where you can enter a trade with the correct size to where you don’t crap your pants when it goes a couple ticks against you. Pick a time frame where you can take the trade and you don’t need a split second reaction if things don’t go as planned. So determine when and how long you will be trading and find a way to enter one good trade during that time frame and try to ride it until your session is over or you hit your profit target/stop loss.

For me I don’t like staring at a chart all day so I find a trade that I can take that will last a couple days if it goes in my favor. I usually look at the 1 hour chart.

Now a little bit about the strategy…

If you are going to use MACD, RSI or any of that junk here is what you are going to have to do. You are going to have to figure out how everyone else trades it and then figure out how you are going to take their money when they are WRONG. So what I would do is I would pick one of those indicators and read up on the school and newbie threads and search the internet to figure out how everyone reads that particular indicator. Once you figure out how the average person trades it then you have found your customers. It is then your job to find a way to take advantage of them when the indicator gives them the wrong signal.

I will use an analogy. Lets say every time Obama comes on TV and gives a speech the market goes up. This becomes fairly reliable Obama, speech, market goes up… Obama, speech, market goes up. What I would do in this situation is sit back and wait for the first time that Obama gives a speech and the market stays flat or is slightly down and then short it! It catches a large number of people by surprise and should result in a healthy move down.

I don’t make any trades based off of news but you get the idea. I also don’t really recommend trading with indicators.

If I were you I would take all that off my charts and learn how to determine the trend. Is the trend up, down or sideways. If the trend is up then you buy on a pullback. If the trend is down you short on a pullback. If it is sideways stay out!! If the trend is up don’t short. If the trend is down don’t buy.

Also start to study support and resistance. This is not some magical calculation, instead this is based off of what price has done on the chart. Use support and resistance to help guide you in determining where to enter and exit your trades. If the trend is up try to find a good entry around a support area and try to sell it at resistance. If the trend is down try to short at resistance and cover at support.

The support and resistance idea might be a little advanced for right now but keep it in the back of your mind and read anything you can find on it. Your main objective is to determine the trend and get in on a pullback.

Alright well I’ll take a go at looking at some of the longer term charts and see how it fairs out. I’ve gone through all the reading in the pipschool and on the internet so I know a lot of the topics and retained them pretty well.

The input is much appreciated, I’ve only had a demo account for a day or two so exploring different trading styles is still growing on me.

Never be afraid to learn, and try new things. I got my but whooped after I did great, Now almost a year after I lost everything I’ve taken a giant step back to understand where I went wrong. Ironically the main problem is easy to identify when you look for it, but very difficult to fix: Myself.

Poor psychology, not enough trust in my system, not much of a system.

I’m working on everything because they are all inter-related. I also need to learn the market will test my patience, if I fail it will smite me with a force unseen before…:confused: