Trading - Why It's Not Working

[Ingot54 13]

WHAT’S WRONG WITH MY SYSTEM?

 

My last post gave you the bones of a trading system. It was not a particularly brilliant setup – it was not meant to be. After all, what I really wanted you to get from the exercise, was this: You can build your own system, if you know what is needed. That’s all.

 

We had a look at some oscillators, some momentum indicators, some moving averages, and we came up with a chart that should look like the one below.

 

OK … so you take the hint, and get to work, creating a simple-but-meaningful template on your MT4 chart. You tweak it a bit, and even discard an indicator or two, and add an indicator or two. Soon the chart is looking good, and you can see where good trades could have been entered and closed, for a nice bundle of pips. It looks good, so you decide to road test it on demo.

 

Suddenly it doesn’t seem to produce the pips it seemed to promise, in the development stage.

 

Does it need further tweaking? Maybe.

 

Is there something wrong with the time frame? Not usually the problem.

 

Am I missing something here? Could be!

 

Then, please tell me what it is … I thought this was easy once I had my own system!

 

Ok. Let’s look at what can go amiss here. To begin the process, we need to set down some RULES so that we begin to follow a STRUCTURED approach to our trade.

RULES of TRADING

 

1. Identify ONE to FOUR currency pairs for this session, that you will assess. Do not flip through a dozen pairs looking for “something to trade”. This is the very worst approach to take when you are learning to apply any system – particularly a new system.

 

2. Examine the trend over at least three time-frames during your initial assessment. Remember, we are trading the 4H TF, so we need to be aware of what is going on in the DAILY TF. Remember: THE HIGHER TF SETS THE TREND. You would also do well to check the WEEKLY TF, and if it lines up, then you have even more going for your trade.

 

3. Once you have identified the trend, trade only in this direction. Trying to trade “counter-trend” is a specialised skill, and a bit beyond most traders in the early stages of learning.

 

4. Wait for your indicators to actually complete the signal – that is – allow the candle to fully close before deciding whether this is a true setup or not.

 

5. Here’s some useful help – check the 1H TF after you have your trigger signal on the 4H. This might be the most important piece of information you will ever learn when trading the 4H TF. In a previous post I mentioned that 4H candles frequently have “wicks” on them – also called “tails” or “shadows.” When checking on the lower TF – the 1H – you sometimes see the price activity pull back in the counter direction to the trend for a short while.

 

This is natural activity, and is responsible for creating the wicks on the next higher TF. I use the word “breathing” to describe it. Price is dynamic, – it does not move in a straight line, and it rarely stays still for long. Once you become familiar with the swinging action of price, you begin to feel at ease with a price that seems to be a trend reversal, when it is not.

 

So … on the lower TF wait until this “pull-back” activity peaks, and your indicators ON THIS TF begin to show movement IN THE DIRECTION of your 4H trend. When this occurs (it might be the cross-over of your moving averages, or the crossing of the zero line of the MACD histogram, for example – your system will tell you) then you are ready to place your practice trade into your platform.

 

This kind of exercise needs to be practiced over and over and over again before attempting to place live trades. NEVER trade with real money on a live account based on a system that someone else has given you, before testing it and mastering it yourself on a practice account.

 

I’ll be frank here – many people want to trade currencies for a variety of reasons – the motivator behind all of them is the money that can be made. Yet the best statistics we have point to only about 5% to 10% of traders actually making any money from this instrument. The reasons for this are complex, but the chief reason is that the skills and energies that go into making other life choices and activities successful, simply do NOT work in trading. It is not a matter of intelligence, or natural aptitude either. Those who possess these actually fare no better as a group than anyone else overall.

 

Here are the qualities you need to possess or develop, if you are to truly master this form of investment:

 

* Commitment to the plan

 

* Focus on the plan

 

* Discipline to remain committed and focused

 

* Patience to wait for the right setups

 

* Courage not to trade, if no setup appears

 

* Contentment with reaching your target

 

* Discipline to follow sound money management and trade management principles

 

* Willingness to close a trade where indicated, that might yield more pips – this is absence of greed

 

* Willingness to close a trade very quickly that is not going according to expectations … the earlier the better! This is absence of fear. Never be afraid to take a loss.

 

This last point is called the “ability to take a loss” and is one of the strongest qualities a trader can foster within their own psyche. There is always another setup.

 

Finally, you need to know how YOU behave under pressure – do you stay relaxed … do you panic … do you regret leaving pips “on the table” … do you disregard your indicators, and remain with a losing trade in the hope that it will turn around and become a winner … do you take trades that have not been confirmed on all TF because you “like the action” … and so on.

 

There are many emotions to be controlled in trading of which you may be unaware. You just don’t get exposed to these in everyday life and trading brings them to the surface. Exposing the person in the mirror to many emotions … and worse … exposing your TRADING to the effects your emotions have on your decision-making, reveals the inner person. I call it your “Trading IQ” and will have more to say about it in another post.

 

Finally, consider this advice: Stay with your system until you MASTER it – don’t jump from one indicator to the next or from one charting platform to the next or from one system to the next. Write down each trade you take, and the reasons WHY your decision was made to take the trade. Write down WHY you closed the trade too – no profits are ever taken until a trade is closed. Writing your reasons for closing can teach you important things about your method, your indicators and yourself.

 

If you can do that, then it becomes clear when and why a change needs to be made to your strategy – and any changes become evidence-based, and can take a legitimate place in your forex trading strategy.

 

 

Posted in my Blog: http://forexapplepie.com/