Quiet Times for Reflection and Development

As we develop as traders there are often many things that we think of that we would like to find out more about or need to develop or test.  It is a good idea just to note those things down as they occur to you, then when there is a natural lull in the markets then this can be the ideal moment to look back at those notes and maybe get on with one or two of the things you would like to take further and develop or understand better.

Today is a classic day for that if you are based in the UK or outside the USA.  Being ‘President’s Day‘ in the US means that the markets are extremely quiet, so it is an ideal day to either take off or to get on with other things, even, dare I say it, to Back Test some of your chosen strategies!

These quiet times can also be a great time to reflect on what has occurred and how things are going in your trading and maybe to tighten up your trading plan and look back at your trading record and particularly your failed trades, as these are the ones we can learn most from.  To do that though, we must have kept a record of previous trades and their outcome. 

However, if you trade in MetaTrader 4 (MT4), then you can easily generate a report from you Trade History, just select the ‘Account History’ tab at the bottom of your screen when your Terminal is showing and then right click on the historic list of trades and then select ‘Save as Detailed Report’.  This will generate a full report over the chosen time period and if you scroll down to the bottom of the report you will see your Equity Curve and associated trading statistics or Stats as we call them.  The key stat to look at is your Profit Factor, this must be greater than 1 if you are going to be able to build your account equity balance and preferably better than 1.5 or even 2.

Top Trading Tip:  When you take a trade in MT4 then take a screenshot of your setup and save it for future reference or sharing at the time of the trade.  Just select 'File/Save As Picture/Active Chart (as is) and give it an easily understandable title such as 'GBPUSD 1hr Regular Bearish Divergence - 11 Jan 2011' and save it in a logical folder such as ‘Past Trades’.  You can then go back and refer to them and compare them to how things worked out and learn from your mistakes.  They are also a great way to get feedback from your peers or Trading Mentor allowing you to show when and why you took a certain trade.

The Answer Is In The Price Or What Is Price Action?

The other day in the Live Room a new student asked the question ‘What is Price Action?’

My answer was along the following lines:

To ascertain whether price is trending, reversing or moving sideways we need to look at current and previous price action on whichever is our chosen time frame.  We need to look at the fractal highs and fractal lows (i.e. the zig zags) taking place as the market moves in waves when moving up, down or sideways.

If price is making successive Higher Highs and Higher Lows then we can say that the market is trending up, similarly if we can see that there are Lower Highs and Lower Lows then the market is trending down and if they are of equal Highs and equal Lows, or thereabouts, then the market is probably consolidating and moving sideways.  If you are at a point where it is difficult to decide either way then the market may be at a turning point.  To make it clearer to you can draw a trend line joining the highs and another connecting the lows.  This also may show whether price is in a channel, an expanding (megaphone like) pattern or a reducing (wedge or triangle like) pattern.  More on patterns at a future date.

So when planning our trades and before pulling the trigger we need to be as sure as we can be of the likely market direction in our chosen time frame and by looking at what price is and has been doing is a useful method of deciding this.  Of course this doesn’t mean you shouldn’t look at time frames above and below your chosen one to ascertain the context of your planned trade, remember the Top Down/Bottom Up approach mentioned in my previous Blog entry.

Top Trading Tip: When planning your trades ask yourself ‘Where is price now, what is price really doing and do I want to get involved?’ and do the same on all time frames.

Happy and Safe trading

Copyright Forex-Crazy.com 2011.  All Rights Reserved.

Top Down & Bottom Up

Last week I went over the importance of Support & Resistance (Demand & Supply Order Flow).  This week I want to build on that and introduce Top Down / Bottom Up.

To become a proficient Forex Trader it is essential to be able to plan and takes trades within the context of higher time frames.  One of my biggest breakthroughs whilst learning how to trade Forex was undertaking regular and rigorous Top Down and Bottom Up analysis, so that I fully understood the context of the market I was about to trade in.

Once a week I will scan through each currency pair that I trade and look at the Monthly, Weekly and Daily charts and analyse and note what I see, particularly key Fib Levels/Trend Lines or Support & Resistance levels, then every day I will look at the Daily, 4hr, 1hr and 15 min when planning my trades and will also work from the smallest time frame upwards marking up what I can see.

This means I have a good feel for where a currency pair’s price might go to and where it could turn plus I will highlight any of the set ups that I trade.  It also means I have a feel for the trend on what ever time frame and where any counter trend moves might retrace to.

So I can then trade my chosen strategies on whatever time frame they occur, whether they are trend or counter trend trades, and manage them within the context of that and higher time frames.

Having planned my trade I will even quickly scan through at least the next higher time frame and the next lower time frame to my chosen trade time frame before pulling the trigger, to ensure I haven’t missed anything.

Top Tip:   Use Top Down / Bottom Up chart analysis and understand the context within which to plan your trades and also your expectations of likely price movement.  Before taking any trade look up at least one if not two time frames and down one.

Copyright Forex-Crazy.com 2011.  All Rights Reserved.