2Bull Forex Blog

Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firms employees working as specialists in equity investment and fund management. However, day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet.

Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.

Your methods are discretionary and technical by nature, but always executed according to strict rules and procedures. All of these rules and procedures should be documented to ensure adherence. Every novice day trader should create a Personal Trading Business Plan

Markets:
Determine what markets you are going to trade; write them down and stick to them.

Trading Hours:
Determine what hours you will be working and write them down.

Entry Strategies & Set-Ups:
Write down your strategies and follow them strictly. Discipline is essential if you want success.

Additional Tools:
You can use a number of technical tools to add strength to a proposed position such as:

1. Moving Averages (34,55,200). The moving averages will give trend direction and I will also be looking for interaction with them as moving levels of support & resistance. The 34 & 55 will be Exponential, the 200 Simple.

2. Fibonacci Levels. These levels can be used as break points, bounce lines or key support & resistance levels.

3. Pivot Points. Various pivot points to check for possible levels of support & resistance.

4. Fundamental Indicators. Throughout the day you should be aware of any upcoming news announcements via the dailyfx.com calendar printout.

Golden Entry Rules:
1. Never, EVER rush into or chase a trade just because it’s moving… Loss of opportunity is preferable to loss of capital!

2. Identify the HIGHEST probability trades, and ignore the others. Remove all stupidity from your game plan - MUST have as many good reasons to enter a trade as possible.

3. Focus on the areas where the patterns are closely and definitively formed. Look for as many contact points as possible for trendlines, channels etc.

ALWAYS look for the most obvious market patterns. This Rule Is Very Important.

Exit Strategy:
You must define an exit strategy, write it down and adhere to it - never allow greed to influence you.

Pre-Session Routine:
1. Define the most obvious patterns (S&R levels, Channels, Flags etc).

2. Define major fibonacci levels.

3. 15-Mins Of meditation & mental rehearsal. Ask myself, ‘How do I feel today?’… If the answer is negative, take the day off

Post-Session Routine:
The following routine will be performed immediately after trading each day:
Complete trading records… list any mistakes, observations, things to change etc.

Risk/Money Management:
You should be using a strict Stop Loss policy defined before entering a position.
You should be risking no more than 3% of your total trading capital on any one position.
If you experience a loss of 6% of your bank (2 losses) on any particular day, cease trading for the day.

Emotions:
Emotions are difficult to conquer when trading. Here is how you should plan to handle the 5 main emotions:

1. Fear
Fear can be overcome by knowing that you have at least 3 good reasons to enter a position. By knowing inside that you have ‘done my homework’ on a trade, then you have nothing to fear. The market will always do what it is going to do regardless of whether you sit there scared or not! You will put all mental effort in BEFORE opening a position, then sit back and enjoy the ride!

2. Greed
You will overcome greed by having a strict policy of not overtrading. You do not need to trade for the sake of it. If the charts aren’t telling you anything, then pass up on the opportunity to trade every time, WITHOUT FAIL.

3. Arrogance
The market is ALWAYS bigger than you. You must constantly remain humbled by it and NEVER get cocky about your trading abilities. You are not here to impress anyone or have fun… you’re here to make money. If you treat the markets and its participants with respect, you too will be treated with respect.

4. Revenge
Conquer revenge by trading your plan with DISCIPLINE at all times. Never try to get back at the market for doing something unprecedented; instead, re-group and plan your next trade in exactly the same way as if your previous trade had been a winner. Composure, discipline & self-control will see you through.

5. Handling Losses
Losses are part of the game; even the very best traders take losses. Providing you are using money-management rules, losses will not overly affect you.

12 Key Points To Remember:

1. In up trends, previous resistance becomes support. In down trends previous support becomes resistance.

2. On an initial break, expect a retest.

3. Always try to decipher where the stops are located & what the other traders are doing - Try to think one step ahead at all times.

4. Anyone who wants to achieve perfection at something must have total dedication to his art, and practice, practice, practice! Champions at anything train hard.

5. You can succeed and make this work if you believe in yourself and trust in what you’re doing. The single most important thing is belief and confidence in what you’re doing - you must have a positive expectancy… a belief system that does not allow for the concept of failure.

6. Treat trading as a business like any other.

7. Trading is a respectable career; there is absolutely no disgrace in it.

8. Trading is a thinking mans game. This business requires more self-discipline than most people are capable of.

9. You have the power to either give yourself money, or give your money to other traders. The market has absolutely no control or power over you, and absolutely NO concern for your welfare.

10. Mechanical systems will not make you any money, you need to know ‘how’ to trade to make money… this requires practice, patience and determination. Work hard at learning how to trade and keep working.

11. Keep trading as part of balanced life. Stay healthy, exercise and practice Kaizen (continuous improvement).

And finally, the most important point of all…
12. Understanding chart pattern is the master key to long-term trading success, nothing else comes close. Always remember that the market is continually giving you signs… those signs are encoded within market patterns. Learning how to read those patterns requires work to stay on top of it, but the rewards are significant.

Unlike so many other commodities or stocks, the E-Mini has excellent day trading characteristics. You could spend months doing research and not find a short-term investment with the outstanding features of the E-Mini. The E-Mini is a special type of futures contract that follows the major trade indices - the S&P 500, the Dow Jones, and the NASDAQ. The first E-Mini was offered in 1997.

Why choose the E-Mini? Because you don’t have to start out rich to get rich! Before the E-mini came along, you actually had to be quite wealthy already to trade futures. You needed huge amounts of capital. But the E-Mini leveled the playing field. It gave small investors like you and me the same opportunities as big-money futures traders.

The business of day trading is one of the simplest, easiest, and most predictable ways to make money.

In fact, if you know how to take advantage of relatively tiny ups and downs in the markets, you can day trade with plenty of confidence - and no anxiety!

But you must have knowledge. Learn how to trade from somebody who is prepared to coach, guide and mentor you until you are proficient and making money on your own.

Forex trading - it’s one of the most exciting new ‘games’ in town. The stakes are variable enough that almost anyone can play, and the potential winnings are high enough to tempt even the most conservative into the running. There’s something romantic and dashing about trading in money - a cachet that stock, bonds and mutual funds just don’t have. With trillions of dollars changing hands everyday, it seems like everyone’s got a fail-safe method that will make you rich overnight. Here are nine failsafe facts that will guarantee that you fail in forex trading.

1. There is a failsafe method to make money on every trade. Just like there’s no such thing as a free lunch, there’s no such thing as a failsafe method. You WILL lose money on some trades, it’s inevitable. Expecting to always win is a guarantee that you will hang on to trades long past the point that an experienced trader would have found an out.

2. You don’t need to know anything about the market to make money in it. Not knowing your playing field is a sure way to hit every bump and hole in it. It’s not enough to read a few articles from your dealer. You need to make a concentrated effort to understand the forces that drive the market so you’ll know the best times to make a move.

3. You can play a winning game by making frequent trades with small profits. If your goal is to make a few hundred dollars a day, you may be ahead of the game, but you’re seriously limiting your profit potential. The only people getting rich on frequent tiny trades are the dealers taking commission on them.

4. You don’t need a plan to make money in the currency market - making money IS a plan. Trading without a well-thought out plan is like jumping out of a plane without a backup chute. Your plan is what keeps your eye focused on your goal, and gets you through the inevitable losses. Currency trading isn’t a short-term game, but most new traders (95%) quit within the first year because they didn’t have a plan to follow.

5. If you stick with a losing trade long enough, it will turn around. Sticking with a losing trade is a good way to lose more money. When a deal isn’t going the way that you expected, it’s hard to admit that you were wrong and get out - but it’s the best way to avoid losing even bigger money. Winning on one trade isn’t going to make you rich overnight. Consistently knowing when to get out - whether it’s to cut your losses or grab your winnings - is the way to be a successful currency trader.

6. Where there’s smoke, there’s fire. Rumors are just that - rumors - 99% of the time. If you want to win at the game, base your trades on reality, not hearsay. On the other hand, rumors can alert you to look at what’s really happening and make a decision based on the movement that you see.

7. The more currencies you trade, the better your chances are of scoring a big profit. The more you know about a currency, the easier it is to predict how and when it will move. The more intimately you understand the way it behaves, the better your chances are of consistently making successful trades in that currency. If you’re trying to focus on too many different currencies, you’ll be spreading yourself too thin to really get to know any one of them.

8. Thinking long-term and trading short-term is a sure way to make money in the long run. That’s one of those logical fallacies that sound good on the surface. Look at it more closely though. If you’re trading in the short term, then you need to keep your eyes on the short term rather than trading to what you think the market will be in a week. Today is today - if you make your best trade today every day, you’ll consistently be ahead of the game.

9. The way to make money in forex is to always have a trade in motion. Sometimes there just isn’t a trade that’s going to profit you. Making a trade just to make a trade is a sure way to do yourself no good - and possibly a great deal of harm.

If you are thinking of buying a currency trading system you want one that has a chance of re producing the track record in real time, over 95% of the ones sold on the net won’t do this and you can save yourself a lot of money by checking this key point.

In terms of how a currency trading system may perform in future it’s vital and it’s:

Check if the system is curve fitted.

Let’s look at what curve fitting is in more detail.

Firstly, the best type of trading system to buy is one that comes with a real time audited track record of profits over 2 – 3 years.

If it works over this time period then the chances are that it’s soundly based, but systems with real time track records are in a minority, most rely on simulated track records.

The Dangers of Hypothetical Simulations

Most track records you are going to see are those that have executed the trading signals in simulated trading over back data i.e. a hypothetical performance and you need to make sure that the vendor has not bent ( curve fitted) the system to fit the data.

Bending the Rules to Fit the Data

In simple terms, this is like shooting with a gun at a barn door and then going around each shot and drawing a bulls-eye after the event.

This is what many system traders do - they can’t get their logic to work on the data, so they create rules and parameters until they do.

They simply bend the system to fit the forex charts and prices in hindsight.

Trading Patterns Don’t Repeat EXACTLY

This will simply not work.

It’s obvious why, because the same pattern is never going to repeat itself exactly in the future.

Spotting a curve Fitted System

They normally contain lots of rules, different rules for trading different markets and coping with different trading conditions.

Always be wary of systems that have gains that look to good to be true, as they probably are!

Currency trading systems that have little drawdown (under 25% ) are not going to repeat this in realtime - this is simply not normal in forex trading.

For a system to work it should only have a few rules and parameters and should trade all currencies and market conditions with the same rules.

Furthermore, they should be revealed to the user – never buy a “black box system” where the rules are not revealed.

The net has seen a huge number of vendors selling currency trading systems and the vast majority are simply not going to work and the vendor knows this.

They don’t trade themselves and they do so for a reason:

They know the system is not going to work and they just want to make money from system sales.

Think about it.

If most of the systems on the net produced the gains in real time that the vendor claims, they wouldn’t sell it to you – they would be to busy making money.

Anyone can make money by making a track record up in hindsight, but in forex trading when you are trying to make money you don’t have this advantage - you have to make money in the real world and try and anticipate price changes without knowing the closing prices.

Don’t Fall For Clever Marketing Copy! Check The Facts

Before you are tempted to base your forex trading strategy on a currency trading system sold by a vendor, make sure you check it out for curve fitting. Chances are if it comes with a hypothetical simulated track record it will be curve fitted and will lose you money if you ever try and trade it in the real world.