Saturday, May 31, 2014

The Trade and the Art of Stepping in and Out

First let me preface by saying that risk management (the trade) is the key element in a successful FX trader. In other words, you can have many winning trades but no profits if the risk is not managed in a systematic way. Every trader has his or her own methodologies in their Trade Management (TM). I won't go into leverage use, slippage, spreads or stops to manage risk as this is my method explained.  Assumptions are the EUR/USD pair and times are NY reference and a five minute chart.

The London 4 A.M. ramp opens the trade (OCO) with a token lot size and I get notified as most of the time during the early morning hours I like to sleep as do most humans. (I'm in the Mountain Time Zone) 

I'll then use my checklist to see if the open trade is a go or not and if it's a go I'll deepen the trade (add lots). What now, you ask?

Look to set my exit points on support and resistance lines (I use S&R and confluence from price action) and if price blows through the first line I take the bulk of the trade off at the next line or resting point. Then I look to exit more at the next line or resting point.  Once the trade is going I move my stop into the money and set limit exits or manage the exits manually. On manual exits I often go down to the 1 minute chart and look for the resting point close to S&R and or confluence from previous price action.

Okay, I can hear you screaming!  Why do you leave so much on the table trading like this. Once the bulk of the trade is taken off, the rest can go to my stop and still book pips.

The bulk exit ratio is about 60-80% and the rest is stepped, limit or stopped out.   Trailing stops are often used for automatic exits as I don't let trading consume me.

Yes, OCO's do open the trade in the wrong direction but my flub ratio is 1 in 20 as you get to know the pair a little better you know where to place the orders.

I'll build on this and talk about Tick and TM (Go or No Go) and also T1 and T2 exits points. Tick is up next. 

More can be found here @BuggyPilot 


Saturday, May 17, 2014

Why I day-trade the Euro / US Dollar almost exclusively

Of the six leading currency pairs traded the EUR/USD has many traits that make it the ideal pair to trade for some of the following reasons.

The pair is king in many areas that are advantageous to the retail trader, like liquidity that's available right out of the gate on opening for the week.

The ability to trade a pair that is almost predictable in pattern trading is a trait that pads the bottom line and allows for more time to create setups that pay off by the use of OCO orders (One Cancels the Other) for unattended trade opening. USA traders can't straddle a trade by law.

In trading currencies the trader has lagging indicators and not much else to go on and only has control over Entry, Depth and Exit, of the trade. The EUR/USD has generally enough daily price (pip) range  to make it a candidate for Deep trades with less risk than with other pairs that don't have the range or volatility as some describe it.  

What this means in general is that with semi-predictable price behavior one can manage a trade with Entry, Depth and Exit strategies that are profitable and have capital preservation characteristics should price turn on the trade.

I'm not saying not to trade other pairs of currency but rather trade what you feel comfortable trading for less stress equals more booked pips.

The learning curve for FX trading is steep and not for everyone, but learning the EUR/USD eccentric behavior can be rewarding be it a micro lot or a deep standard multi-lot trade.

In closing I want to stress that this is not all there is to trading the EUR/USD but some fundamental reasons I trade the pair.

Feel free to contact me for more on my FRAHM methodology of trading the FX market.  Long live the Golden Sequence and Holistic Trading Methods. 

An instructor drilled into his students to be successful you need to follow the philosophy of "Stops are in, Emotions are Out" and you'll do well.

Please don't ask about the gap in posting, okay!

Next post I'll talk about managing the open trade the way I do it.

-Rod  My phone number can be found here: @BuggyPilot