Intraday forex trading can get you so absorbed with the minutiae that you miss the point. The danger sitting in front of a screen all day presents is the devil finding work for idle hands. Tweaking and what euphemistically passes for 'fine tuning' will drain your energies, and your capital and leave you with a long and wide trail of discarded methods and systems, a few of which, had you let them do their work, would have provided you with the results you were seeking.
My suggestion is to take a view on expectations of directional price development and stick with it until there is unambiguous indication that view is no longer valid. There is ample advice all over the place recommending trading the counter moves and some of it may be valid, but not often enough to justify the additional risk you assume by taking such a view. Proponents will provide numerous confirmations of trades 'they took earlier' and everyone can look good in retrospect. Always look for the exceptions to the rules: When you 'find' a system that 'works' - spend at least as much time diligently looking for situations where your new found ticket to fame and fortune does not work. You have to take an antipathetic view to all your (and especially others') hypotheses or you'll fool yourself.
Sticking with a directional view over the course of a trading day using devices as simple as moving averages does two things: It stops you taking half the trades you might otherwise take. It stops you taking borderline trades. There is nothing glamorous about moving averages, which is why they are so useful. While I'm not going to suggest you follow my advice blindly, in fact, you should test all advice and opinions, especially those given on the internet where every man and his dog is an 'expert', I am going to suggest you simply look at the following over the course of this coming (presumably low energy given the time of year) day.
Stick a 240 and a 50 and a 10 moving average on your chart. Simple moving average will do. Doesn't matter what timeframe. Only take trades where the three moving averages are in the correct order (10 above 50, 50 above 240 OR 10 below 50, 50 below 240) and the price is above OR below the set of moving averages.
So, price, above 10, 10 above 50, 50 above 240 - take longs.
My own entry setup is a close above the 10 for a long (OR below the 10 for shorts). I'm not suggesting you trade this as I haven't yet given the other factors I use for entry and exit or trade management and risk management, which I will do in due course. But just by way of a starter into keeping things simple perhaps take a look at how simply limiting any trades you take or would have taken today to within the structure supplied by these three moving averages would have impacted your P&L.
If they're not in the correct order or the price is 'tweezered' between them - you simply sit it out.
Last edited by AJStanbridge; December 22nd, 2014 at 12:36 AM.
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When you look at the perfect moves that you wish you'd taken from the very start to the very end, you begin to notice they mostly all have something in common: Once they start, they never look back.
There is an infinitely tedious debate about where initial stops should be set. It is tedious only in that there is no one size fits all answer as each trader will (or should) have their own risk and capital allocation & management plan in place so it's definitely a horses for courses issue. However, my own take is that on those perfect moves, once the momentum has kicked in and the move is underway, the price rarely retraces beyond your entry point. There will be many cogent arguments put forward for giving a trade 'room to breathe' and 'time to develop' and these arguments relate more squarely to individual trader psychology than they do any technical aspect of price develpment and trading and they are valid in that respect. But my view is that your trading defines your psychology - not the other way round.
If I'm in a good trade, it will not come back against me - by definition. My stops are always tight up against the high/low of the signal bar (normally the prior to cuurently open one on which I equally normally am entering) plus/minus double the spread. I sometimes get taken out to the pip and then the price takes off as I initially expected and that's one of those things. But what happens every time with every trade is that those bad ones don't take more than a few pips off my emotional daily pip tally account. It also means I am typically playing for risk-adjusted stakes of worthwhile size.
My own view is to keep initial stops tight and get taken out early for little on the ones that don't work out which also means having decent size on those that do run. The additional benefit of tight initial stop is that you'll typically get taken out shortly after entry on the ones that aren't going your way immediately. This frees up your decision making for evaluting other potential trades and managing those already in play.
Make no mistake, you come to the table each day with a finite amount of decision making energy. Once it's gone, it's gone. You get fuzzy, tired and prone to error when it's depleted. So use it wisely.
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Messing around with trading performance metrics is a great way to use all that spare time in between trading setup evaluation opportunities or more often, when you’ve used up all your premium grade energy and can’t face making another trading decision. It’s also in my view a total waste of time.
Trading is a process of adaptation to changing market dynamics. The way you trade, how you trade even what you trade will by necessity change over time. It has to. Global commerce, the balance of trade, supply, demand – all the macro-economic fundamentals which themselves get tangentially buffeted by law, politics, warfare, disease, medicine, technology, R&D, culture and synthetic trends – will shape what is and what is not a trading opportunity at any given time.
While hedge funds, Funds of Funds, Mutuals and other financial investment corporates are required to provide performance metrics – you are not so burdened, so why do it? Your past 100 trades will likely bear little resemblance to the next 100 in terms of the basis for their entry and execution and management. The process is too fluid. Therefore it makes no real sense attempting to average what you did in the distant past with what you did in the more recent past. All it does it make any assessment of either tranche of trades completely inaccurate. Bit like averages of anything, they represent a mathematical entity which can be useful for modelling and functional derivation purposes, but of which no element of the set may necessarily take that value.
Your mental focus is vital even when trading very simple methods. As with decision energy mentioned in an earlier post, mental focus energy (it’s all the same energy obviously) is finite. Be sparing with how you use it. Time and energy spent massaging your trading performance data is time and energy that cannot be utilised for anything else and there are much better things to be doing with it even if (especially if) it’s ‘only’ keeping it in reserve ready for those times when the markets offer you a feeding frenzy.
All you ever really need to know about your trading performance is: Am I making money over the course of any given month? Down days and even down weeks are par for the course. Looking at detailed metrics will NOT make you a better trader. Your time would be better spent looking at how you trade and what you trade.
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You don't often hear traders discussing 'staying in' criteria or 'staying out' criteria. A vastly over-looked and underrated area of trader intelligence and education in my opinion - one which I’ll cover in subsequent posts. But in order to meet the brief of the title of this post, if you’re in a trade and don’t have a specific exit setup showing, but find yourself harbouring vague feelings of disquiet along the lines of ‘should I stay with this one or not?’ it’s probably a good time to ask yourself one or both of these question:
“If I wasn’t in this trade right now, would I be going in?”.
“I’m already in this trade – do I want to buy (sell) more?”.
The number of times you will ask yourself one/both of these question and get a negative response, yet stay in the trade, and come away with more profits than if you’d come out at that time you asked those questions are few and far between.
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do you trade eur/usd?
I took a trade today short at 70 but then got out when it dipped to 50 and retraced back 60, got back in at 57 to 34. wasted a bunch of points getting in and out, as well as commissions. how did you or would you have traded this pair today?