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At the beginning, I was overwhelmed like many others by the indecent numerous trading techniques that are published, because of those multiple websites repeating exactly the same slogans on how to be a trader that lead me to nowhere. During the last years I have tried one by one dozens of different trading strategies only to see these one after another. This path has been hard and full of failures to the point that many times I have doubted if there is really a way for earning money by trading (Forex in my case). I have spent an important amount of time and hundred, maybe thousands of euros acquiring paid software, books and spent money on trading tuition and rehearsal. Also whole years without holidays pursuing strategies to become a successful trader until I finally achieved my purpose.
Trading has several aspects I will try to expose next.
This is the most important part of trading. You can read Trading in the Zone by Mark Douglas to better understand the topic. But unless you do not deeply learn the psycological details of trading you will fail for sure.
What’s special about trading?
Trading is probabilistic, so you repeat the same strategy again and again. You accept losses as a part on the wager. You accept that everything that may happen will happen when trading, everything you do not want to occur, it will occur eventually and repeteadely.
Trading is not a game, there are no rules. It is not safe and nothing you may predict.
Trading causes very strong emotional burden. You have to learn how to control it to avoid cutting your earnings and letting your losses grow. Your next trade will not be recover any previous loss, but to follow your system and earn money with it repeating the same steps of the same strategy.
Price is something hard to define when we speak about financial markets. I tend to think that price is more about expectations than value. People make money in any market by buying at low prices and selling at higher prices. Or by doing something equivalent.
Trading financial markets is about doing exactly it, finding when prices are either high or low and entering at the right moment. On the next figure there is an example of the strategy that beats the market which is very simple.
For doing it I use OCHL bars or japanese candlesticks. The next figure shows the same chart but using the candlesticks for displaying the price change.
The advantage is that with candlestick I can know which is the open, close high and low levels. I can now spot which will be the turning points of price analysing the current price momentum, trend and in particular the difference between high-low and open-close.
I know by observation that at the turning levels, called support and resistance levels, the candle’s wicks begin to be long compared to the candle bodies, so I can follow and predict the most probable price evolution by correct interpretation of the price changes. This is called price action trading.
Basically, with long compact candles there is no too much to do except they represent the current price momentum. If momentum and trend keep up with their direction, then we can take profit from it. Otherwise we must stay out. Look for instance the next figure, the colored part of the candle represents the open and close price levels while the wicks the maximum and minimum prices.
The first bar is a strong bar in which the range of prices has been respected during all the trading session. The second bar instead shows that the price of the asset even if it reached the same level as the first candle, it finally closed very low, almost at the same level of the opening price; meaning that traders perceive that the value of the instrumet is much lower than the highs of the session. In the first case we might expect some kind of price continuation or at least price slowdown. In the second case there is a chance that price will reverse within a bearish trend.
Therefore we are looking all the time longer wicks to enter and examining the price history to determine good entry points. How? Simply by confirming we are on a support or at a resistance depending if we want to either buy or sell. And that is all the story here. There is a number of patterns we can identify and use it to enter the markets. See an example below.
So, the key technique is identifying which are the turning points by observing the past and trading on the strongest levels found. On the figure above a resistance area is confirmed by notice it often acted as a strong resistance. Then we wait for both, momentum and trend to follow the same direction and we enter when a well-known pattern is produced. In this case a price reversal after a bearish breakout.
The goodness of this system is that we do not have only vague indications as almost all the trading resources, we do know the exact entry area according to what we can read from price itself, without using any indicator nor fixed pattern.
Fundamental analysis is not part of my trading, but I trade fundamentals however. A lot of profit can be obtained through trading fundamental announcements, with a higher risk, it is not difficult to get a 30% increase of your account in a single fundamental event.
Risks of trading
Trading is a very risky activity and it is not suited to most of the people they say. Well, it may not be suited for most of the untrained people, but if one person is correctly prepared trading is not an issue riskier than any other economic activity.
But trading is not for novices alone, for unprepared people or for any person who would not be able to run a regular business successfuly.
Trading requires a lot of concepts to be assimilated and mastered before risking money and it takes months, otherwise and especially with leveraged financial instruments, it can blow up your account in a few days and even incur in debts due to the leverage levels.
I would say that trading is very difficult yet not riskier than other business. If we consider that 80% of people loss money when trading, we should take precautions as we would do with any other business.
Trading involves costs, requires investment, skill and hard work as any business needs. The rate of failure in any market will probably be similar to this 80%-90% reported by brokers regarding individuals lossing everything and more of their initial investments.
Money management is very important and it is key to make your account grow fast and limit your losses. I use compounding position sizing for instance.
If you are interested in straightforward learning experience, I offer a one-day seminar in trading to teach the basic principles that will allow you to become a trade once you master the practical strategies I can teach. It is not cheap but it will cost to you much less that it has costed to me. If you want a proof of it contact me to schedule a free demo session to show you how I beat the market you decide me to trade in Forex and other instruments at any past date you choose.