When it comes to trading there a millions of systems, millions of methods, and millions of theories on which way is better to trade. One thing we have learnt and one of the first things an intern trader will learn is that each individual investor will have to develop their own trading strategy, system, and rules.
Most of you reading this article would have most likely covered the basics at some point during your time in the markets; the question then is how to move forward from here.
There are the basics rules of trading, lets refer to them as Trading 101. This includes some of the below to give you an indication:
Traditional Rules
Trend is your friend
ֻNever trade against the trend
Take profits as they come
Fundamentals
Technical
Always use a stop loss and more…
Traditional Theory
Trends
Support and Resistance
Correlations
Price Action
Fibonacci
Pivot points and more…
Traditional Systems and Indicators
MACD
Stochastic
RSI
Moving Averages and more…
If you have heard, or use any of the above it is imperative that you learn how to internalize and personalize your trading strategy. The amount of times we have seen screen shots of charts that look more like a Star Wars adventure in outa space with all the indicators and trend lines is enough to make any man confused and uneasy.
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Once you have been through the notions of learning about indicators, filling your chart with trend lines, buying and or using other peoples trading strategies, lets turn this all off.
Next time you open a chart, close or delete all of your indicators, and trend lines, and look at a blank chart. It might be worthwhile to even change the whole look and feel of your chart and we suggest the following:
Make your background colour white
Remove your background grids (if you cannot then just make them white)
Change your candlesticks to black and white
Black border, black candle for bearish candles
Black border, white candle for bullish candles
Looking at this chart, you will see the market in its naked form. This chart is easy to read, easy to analyze and shows the market movements in its most basic and effective form.
Further to this, lets strip down all the urges to clout the chart, and lets minimize all thinking associated with this. Now would be the time to think fundamentals, and slowly look at the technical aspect of trading.
The movements you see on a chart (change your chart to a minute chart) are emotionally driven. Traders will argue throughout the night about the reasons for the movements on a chart, but in its most basic form, there is a “player” or entity somewhere in the world, which is putting an order into the market and subsequently has an intrinsic affect on the market price.
Whatever the person or entity has decided to do has come after he or she has made an internal decision to place that particular trade and direction. There was a conviction, which led to the action.
This is the emotion aspect of trading. This is the basis for why a chart moves up and down, and why the price moves. The decision that was made can be or is based upon many different factors such as fundamentals, economic data, technicals etc. The point however is that the decision was made after an emotional conviction or a parameter that has been met.
Continue looking at a chart, and start looking for changes that happen in a chart. We are breaking the stereotypes here folks. It’s ok to look at tick charts, minute charts, and all time frames that show a picture that assists you to build a trade.
Don’t be contained to one or two instruments. Feel free to wonder through various pairs, until you see what you feel internally to show a directional picture. If there are no trades that jump out at you, then don’t trade.
Once you see a chart or pair that by looking at it’s most basic form shows you what you see as a clear picture, start breaking the chart apart. What you want to avoid is once again putting trend lines all over it, placing your indicators on the chart etc. Deconstruct the chart going through some of the most basic of trading theory- Consider break outs (break out of 20/ 50 day highs or lows) and or breaking of a clear trend, look for basic price action movements (key “stepping of the price” downwards or upwards). The key here is to use aspects of what you have felt comfortable with, to help you gain perspective and a confirmation.
As you go about the clarification process, look at your internal feelings, and essentially look at what your thoughts are- are you still convinced, is there a doubt? If you are still comfortable with a trade place your order (demo trade this for a while whilst you get the hang of it).
Place your order with a take profit and stop loss order at the levels you determine it will eventuate to. Don’t change these and let the trade happen.
This is by far one of the most important things to learn, and if all you can take from this article and us and implement into your daily trading this would be the most important TIP.
Learn what makes you nervous about a chart or trade, how do you react to trading. Not everyone has the psychological build of a scalper, not everyone is a risk taker, and not all are mathematicians. If you are a person that has no control, then don’t scalp, if you are a one-trade trader then stick to one trade etc.
Understanding your own psychological profiling and how it effects your trading is imperative to becoming a successful trader. We are all different, and handle different situations in our own way. Trade the way your emotions allow you to.
In summary, follow the above for a week or as long as it takes to give you perspective and courage to build your own plan, your own strategy and confirmations.
We strongly recommend that each trader or investor learn the basic rules of price action, break outs, and investigate their own psychological profile to create an internalized and personalized trading strategy.
