The Way i Trade

Now that the strategy has been revealed to be easy, simple and straightforward (just 50 SMA and 100 SMA crossing over), lets see how to trade it....There are various ways of trading it by the way i trade it is that i always look to take trades in the direction of the trend. I see that after the cross over, euro is going to go up. Thats the conclusion that i make cos i trust my system fully. I know that there is a whole lot of negative news swirling around about the euro but i just trust my system, nothing else. If my system hits SL and takes me out of the trade, thats fine. I will still take the next trade according to my system.

So, my system asks me to go long on the euro. Since the system is based on daily timeframe, the stop loss on any trade would be a minimum of 200 pips to a maximum of 300 pips and i will be looking to add a maximum of 4 positions, all in the direction of the trade. So, the way i do it is, switch to the hourly chart, find a good support region, wait for the euro to reach there, take the first 1/4 position. If the support is strong and i can afford to have a smaller SL than 200 pips, then i take more than 1/4 position. This kind of trading is all about lot sizing/money management. If i am convinced of the trend, i will go in with small lots and bigger SLs and continue to add position as the price falls, all within my money management strategy. I will never choose to risk more than 0.5% of my balance on any trade and so i plan my lot sizes, entry positions and SLs accordingly.

For eg., in the most recent case, i would see that 1.3050 was a very good support region which was not properly broken for several days. So, i entered a large long position on the euro with SL as 1.3000 cos i know that if 1.3050 is convincingly broken, it would start falling down a lot. So, my SL was just 50 pips and my target is the next resistance region on the hourly chart which is at 1.3190. I choose to either exit fully there or a part of my position there depending on PA. Most of the time, it will be only part of the position. I would also be looking to load on my new longs at small support regions like 1.3130. As long as i am convinced of the uptrend, i will continue to load longs at each and every support region on the hourly and will choose to exit part of these longs at each and every resistance region. All within strict money management rules.

There is a lot more intricacies to this trading but basically the idea is to trade in the direction of the trend with good money management. So, i will always have a few positions open of varying sizes and will keep taking profits at all the correct points. So, i will have profits in the bank, some negative positions and some positibe positions but all of them will be within the right money management rules and sum of the positions will never cross 0.5% of the balance, as far as a single pair is concerned.

Been a Bit Busy

Apologies but have been a bit busy over the last 2 days and today, i have caught a cold as well. I will try and update as much as i can!

Not Following Rules

One of the major mistakes that traders make is that they do not stick to their trading plan. They manage to come up with a good trading plan, in fact, it might be one of the best around but they spoil it by not following the rules of the plan. Lets take the euro for example. Our crossover strategy tells you that euro might be in an uptrend soon. But when you read the news, you see so many bad things being said about the euro. How it is going to collapse, yields are rising, Spain is on the brink etc.

Irrespective of the pair you trade and the direction that you choose to trade in, you will always have news to the contrary. They do not make anything necessarily clear to you. Rather, they can make it quite confusing . This happens each and everytime that you take a trade, especially swing trades. This is because these trades get affected by news all around and so you go around seeing news and easily get misguided by them. Secondly, when you swing trade, you have so much free time that you spend that reading up news wherever you can get it from and they basically confuse you, induce doubts in your trade and ultimately, you either bail out or dont take the trade at all.

This can happen easily for us when we try and trade the euro now. Our simple strategy points up but all the news is negative. So, we can easily be misguided into not taking the trade at all. Or bailing out if we are in already. This is why it is so necessary to believe in the system.

Before you decide to trade a specific plan, test it thoroughly and spend time and effort in analysing whether it really works. Once you are convinced that it works, follow it strictly and just shut out everything else when you are trading. Better you go out or get some good hobby or get some other work to do when you are in a trade. The mistake that you can make is not to follow the rules of the plan cos someone told or you read something to the contrary.

Blind as a Bat!

Ok, now we have a general outline of what we are trying to do. We have a simple system that shows us the trend which is solid enough not to confuse us with frequent crossovers this way and that. The crossover of the 2 MAs happens once every 6 mnths or so which means that it is a reliable indicator of the trend. So, now, all that we have to do is ride the trend. One of the age old adages in trading is that the trend is your friend. So, we have a friend with us. We just need to ensure that we get along with our new friend so that he doesnt lead us to trading death.

Unlike other analysts, who love to teach you systems which worked 1 year back and tell you about how they made lots of profits a year back, we will learn by a live example. As i showed yesterday, the EURUSD daily SMA cross over happened a few days back. This crossover indicated an uptrend. Nothing much has happened since and price has been ranging ever since. All of us are in the same page. I am as blind as you because even i do not know what is going to happen next. As i said, i am not going to boast about what i did or did not do last year, as many others do. No one can predict what is going to happen next in forex trading. If someone says that he can, he is lying. Period. We all are blind bats. We navigate our way by trying to sense what is ahead of us, just like a bat.

The difference between a great trader and a bad one is not in the strategy that he uses, it is in the way he uses the strategy, combined with his money management. As i said, we are all blind as far as what is going to happen next. Just because we had a crossover which indicates an uptrend, i am not going to promise you that we are going up. We have indications of price going up but as always, we will prepare for all eventualities.

So, now that we have an indication that price may be going up, first thing that you need to do is to trust the system that you have at hand. Block out everything else. This is one of the biggest challenges that a trader faces. I will discuss this in detail in the next post.

Now the Chart and the general outline

So, this is no rocket science. Swing trading is all about patience, discipline and good money management. Strategy is very simple and the fact that it works is unquestioned. We are not going to learn or teach the strategy. Of course, we will discuss about it but the challenge will be in trading the strategy than the strategy itself.

Here is a live example of a daily chart of EURUSD. The 2 lines are simple and basic, used by a lot of traders, the 100 SMA and the 50 SMA and they have crossed each other 7 times in the past 3 years. You can see those on your charts. Its very simple. They crossed again a few days back and so we have a live example now. Now, our challenge is to come up with a strategy and trade it accordingly. Isnt the chart lovely?

Beginnings of a Strategy

There are many ways to trade and contrary to popular belief, there are loads and loads of strategies that work successfully. If you had followed my history, you would have seen that i have presented atleast 3-4 strategies that actually work and these are just the ones that i present publicly. So, like this, each successful trader will have a bunch of strategies that work. So, really there is no dearth of good strategies. Its all about how we interpret them and how we trade it with good money management. Its very easy to come up with a good strategy but what adds to the difficulty is that it is not easy to trade the strategy unless you are disciplined.


first a question....then, later on, a chart...

how easy or difficult would it be to trade if we had 2 lines in a chart, which crossed each other probably once in 6 mnths and each crossover yielded 600-700 pips atleast 80% of the time that it happened?

easy to trade or difficult?

Swing Trading is a Challenge - Part 2

Most of the traders stop their trading at this stage. They simply get too tired having to constantly fight this market and also constantly losing out. They dont get the easy money which they thought they would get when they started forex trading and so many just give up and walk off.

Few of them go to the next stage of a traders life when they truly understand the need to have a good trading plan. Once they have understood this need, very few do, they start looking at 1H, 4H and daily timeframes to try and come up with strategies. They realise that these timeframes have better trading opportunities which lead to more steady trades and they finally hit upon a good strategy which works well. They would think that finally all their problems are solved and that they are on their way to riches. This is the place where they hit the second snag in their trading lives.

They can clearly see that the strategy works great but it does not fit into their mindset. Their mindset is tuned to quick money. Quick ins and outs where they can see profits or losses within 30 mins to 2 hours and so they simply cannot wait for 18 hrs or 48 hrs which the trading in high timeframes demand that you do. Its simply not in their psyche. So, they take trades in higher timeframes but get out very soon. Then sit and rue as the price continues to go in their direction. This also means that the losses become bigger and the profits become smaller ultimately leading to failure. The failure, unlike in the first case, is not because of a bad strategy, the failure is because the mind of the trader is not tuned to the strategy. He is simply not disciplined enough to wait for the right trades and wait for the trades to hit his targets. This has got a lot to do with this get-rich-quick mentality of this generation. 20 years back, returns higher than that given by banks were highly coveted. Nowadays, anything less than 20% per year is scoffed at. Greed leads to demise, demise of principles, demise of discipline and ultimately demise of your money.

Very very very few traders cross this second stage. Those rare traders are those who are diligent enough to come up with great trading plans and highly disciplined enough to stick to it , no matter what. Even if they have losing trades, even if their DD is -ve and even if they have to wait for days together for their trades to hit their targets, they will do it. They have tried and tested their strategy to know that it works and they will stick to it no matter what. This is the highest form of trading which very few people achieve. This, is the essence of swing trading.