First, determine the concept you want to trade, or the market phenomenon that you want to take advantage of. Choose a concept that you identify with, that makes sense to you and that fits your personality. You say "...momentum...trying to take advantage of rallies and pullbacks". You should define that further, then you can choose the proper method, indicators, and/or tactics to trade that method.
For instance, personally I've defined my trading approach as trading 'short term momentum reversals'. I don't want to be in trades for hours, I don't want to sit through pullbacks. I want to trade momentum in the direction of the trend attempting to enter at the bottom of a pullback, and I want to trade against the trend attempting to enter at the top of a pullback. I also want to be able to trade when the market is trending and when there is no trend, when the market is ranging.
Given these parameters, my research revealed to me, the most efficient way of trading this 'short term momentum reversals' concept is through divergence. That is the market phenomenon that fulfills all these needs for me. This phenomenon made sense to me, and it fit my personality. This automatically said that I am not going to be a trend trader, also said that I am not going to be looking for home run trades, says that I am not going to use certain trade management like pyramiding, etc. This also automatically cut down the field of indicators that I might use, and how I would use them. Also says, I am not going to be chasing after every concept the 3 guys next to me are trading.
Before you choose a trading method and tactics such as indicators, price action, moon cycles, etc., fully define the trading concept that you want to trade.
Last edited by monpere; May 11th, 2012 at 01:32 PM.
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I feel I canīt explain exactly the way I trade, although itīs similar to your method. Iīm not an investor. I have no patient to hold a position for days. Besides, I trade CFDs, so holding a positions for days will have costs. I trade reversals and highs and lows of ranges. However, some donīt work.
That are few times that my indicators are right. Stochastics is dancing for every moves. Whenever it reaches 80 or plus it means nothing as the market can continue to rise. MACDHist and lines during the day give lots of false buy/sell signals. The sma I see the most is the 5 sma slope to decide to enter or not.
I confess I donīt know much more indicators.
I still have one thing to solve: insecurity. That are many trades that come to be as I expected and I slimply donīt enter the trade. I donīt lose money, but I also donīt win.
You may need to spend more time looking backwards, meaning looking at historical charts to discover and recognize the patterns that will improve your trade identification and trade filtering methods. I trade 2 different setups, a divergence setup, and a trend pullback setup, but there are many occurrences of these setups that are filtered out by my rules.
The only way to discover and develop these filtering rules is to look at lots and lots of historical data. When I was developing my method, I spend hours upon hours everyday, for many months looking at historical charts, searching for those patterns in all the major instruments. After a while, your brain will automatically start to pick up the patterns and their filtration, and you will find that you become better and better at filtering out the instances of your setup that have lower win probabilities. You will also find yourself automatically gravitating towards certain instrument(s) and certain time frame(s), etc.
It seems you have an idea of what type of market phenomenon you want to trade. But since nothing works 100% of the time, what you need to do now is to develop the 'filtering' mechanism to weed out the bulk of the bad signals. My personal process was to look at all major instruments and physically mark up on the chart all signals, every winner, every loser for each day, no analysis, just mark up every signal your brain sees. This will teach your brain to instantly recognize patterns by looking at any chart for 2.5 seconds.
Then go back and quickly scroll through all the losing signals for each particular day in one pass, and go back again and quickly glance through all the good signals in another pass. After many days and hours of doing this, your brain will automatically start to pick up the similarities of all the bad signals, and similarities of all the good signals. This will subconsciously develop your filtering mechanism.
I still do this now everyday after 7 years of trading. After the market closes, I go through my favorite 3 or 4 instruments, and markup all the signals win or lose for the trading day. This continually reinforces and keeps my skills sharp with the method, so that that all the rules and filters are ingrained in my brain and are 2nd nature. I also explicitly wrote down every rule and every filter as I discovered them, removed and/or updated them, and also reviewed them regularly.
The key is to choose a concept, and commit the time and effort it takes to develop a method and tactics to trade it, develop confidence in it, and for it all to become 2nd nature to you. Once you reach this point, you can now start concentrating on optimization techniques such as various trade management approaches etc. to maximize your trade profitability.
Last edited by monpere; May 11th, 2012 at 03:29 PM.
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I trade mostly Dow Jones Index. I also trade Light Crude, but the fact is, for the type of trading I make, the spread I pay for Light Crude isnīt so good compared to Dow Jones Index. Plus, Light Crude is harder to trade, in my opinion.
Iīve improved. I can avoid trades I confirm later I did well not to trade. The previous two months, I was able to recover almost all the money I lost (about €800). I was stupid and risked/ignored part of my rules with some trades that cost me almost that money. Iīve learned my lesson, though. So, not everything I do is wrong. I lack consistency.
It sounds like you are expecting indicators to be infallible ... they are not .. they're indicators ... they indicate what the market may be doing ... are subject to interpretation and much is lost in translation...
I have a friend who loves to fish and has tried to teach me how to fish .... he tells me watch water temperature,wind direction, barometer readings, weather changes, the "fish locator " and what type of lures to use depending on the conditions.
I fish the same lake he does ... I catch no fish... he catches his limit ...
I'm just a simple man trading a simple plan.
My daddy always said, "Every day above ground is a good day!"
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