So you wanna trade Forex? - tips and tricks inside
Let me just sum some stuff up for you newbies out there. Ive been trading for years, last couple of years more seriously and i turned my strategies into algorithms and i am currently up to 18 algorithms thats trading for me 24/7. Ive learned alot, listened to hundreds of podcasts and read tons of books + research papers and heres some tips and tricks for any newbie out there.
Strategy - How to... When people say "you need a trading strategy!!" Its because trading is very hard and emotional. You need to stick to your rules at all times. Dont panic and move your stop loss or target unless your rules tell you to. Now how do you make these rules? Well this is the part that takes alot of time. If your rules are very simple (for example: "Buy if Last candles low was the lowest low of the past 10 candles." Lets make this a rule. You can backtest it manually by looking at a chart and going back in time and check every candle. or you can code it using super simple software like prorealtime, MT4 ++ Alot of software is basicly "click and drag" and press a button and it gives you backtest from 10-20-30 years ago in 5 seconds. This is the absolute easiest way to backtest rules and systems. If your trading "pure price action" with your drawn lines and shit, the only way to truly backtest that kind of trading is going in a random forex pair to a random point in time, could be 1 year ago, 1 month ago, 5 years ago.. and then you just trade! Move chart 1 candle at a time, draw your lines and do some "actual trading" and look at your results after moving forward in the chart. If you do not test your strategy your just going in blind, which could be disaster.. Maybe someone told u "this is the correct way to trade" or "this strategy is 90% sure to win every trade!!!" If you think you can do trading without a strategy, then your most likely going to look back at an empty account and wonder why you moved that stop loss or why you didnt take profit etc.. and then your gonna give up. People on youtube, forums, interwebz are not going to give you/sell you a working strategy thats gonna make you rich. If they had a working strategy, they would not give it away/sell it to you.
Money management - How to.... Gonna keep this one short. Risk a small % of your capital on each trade. Dont risk 10%, dont risk 20%. You are going to see loosing trades, your probably gonna see 5-10 loss in a row!! If your trading a 1000$ account and your risking 100$ on each trade (10%) and you loose 5 in a row, your down -50% and probably you cant even trade cus of margin req. Game over.. Now how does one get super rich, super fast, from risking 1-3% of your account on each trade?? Well heres the shocking message: YOU CANT GET RICH FAST FROM TRADING UNLESS YOUR WILLING TO GO ALL IN! You can of course go all in on each trade and if you get em all right, you might get 1000%, then you go all in 1 more time and loose it all... The whole point of trading is NOT going bust. Not loosing everything, cus if you loose it all its game over and no more trading for you.
Find your own trading style.... Everyone is different. You can have an average holding period of 1 month or you could be looking at a 1 min chart and average holding time = 10 minutes. For some, less volatility helps them sleep at night. For others, more volatility gives them a rush and some people crave this. There is no "correct" timeframes, or holding periods, or how much to profit or how much to loose. We are all individuals with different taste in risk. Some dont like risk, others wanna go all in to get rich over night. The smart approach is somewhere in the middle. If you dont risk anything, your not gonna get anything. If you risk everything, your most likely going to loose everything. When people are talking about trading style, this is kinda what that means.
There are mainly 2 ways to trade: Divergence and Convergence. Or in other words: Mean reversion or trend following. Lets talk about them both: Trend following is trying to find a trend and stay with the trend until its over. Mean reversion is the belief that price is too far away from the average XX of price, and sooner or later, price will have to return to its average/mean (hence the name: MEAN reversion). Trend following systems usually see a lower winrate (30-40% winrate with no money management is not uncommon to see when backtesting trend following systems.. You can add good money management to get the winrate % higher. Why is the % winrate so low? Well a market, whatever that market is, tend to get real choppy and nasty right after a huge trend. So your gonna see alot of choppy fake signals that might kill 5-6 trades in a row, until the next huge trend starts which is going to cover all the losses from the small losses before the trend took off. Then you gotta hold that trade until trade is done. How do you define "when trend starts and stops"? Well thats back to point 1, find a strategy. Try defining rules for an entry and exit and see how it goes when you backtest it. For mean reversion the win % is usually high, like 70-90% winrate, but the average winning trade is alot smaller than the average loosing trade. this happens because you are basicly trying to catch a falling knife, or catch a booming rocket. Usually when trading mean reversion, waiting for price to actually reverse can very often leave you with being "too late", so you kinda have to find "the bottom" or "the top" before it actually has bottomed/ topped out and reversed. How can you do this you ask? Well your never going to hit every top or every bottom, but you can find ways to find "the bottom-ish" or "the top-ish", thens ell as soon as price reverts back to the mean. Sometimes your gonna wish you held on to the trade for longer, but again, back to point 1: Backtest your rules and figure that shit out.
Read these 4 points and try to follow them and you are at least 4 steps closer to being a profitable trader. Some might disagree with me on some points but i think for the majority, people are going to agree that these 4 points are pretty much universal. Most traders have done or are doing these things every day, in every trade. Here is some GREAT material to read: Kevin Davey has won trading championship multiple times and he has written multiple great books, from beginner to advanced level. Recommend these books 100%, for example: Building winning algorithmic trading systems" will give you alot to work with when it comes to all 4 of the above points. Market wizards, Reminiscences of a stock operator are 2 books that are a great read but wont give you much "trading knowledge" that you can directly use for your trading. Books on "The turtles" are great reading. Then you have podcasts and youtube. I would stay away from youtube as much as possible when it comes to "Heres how to use the rsi!!!" or "this strategy will make you rich!!". Most youtube videoes are made by people who wanna sell you a course or a book. Most of this is just pure bullshit. Youtube can very harmfull and i would honestly advice about going there for "strategy adivce" and such. Podcasts tho are amazing, i highly recommend: Better systems trader, Chat with traders, Top traders unplugged, We study billionairs, to name a few :) Also, on a less funny note.. Please realize that you are, and i am, real fucking stupid and lazy compared to the actual pro's out there. This is why you should not go "all in" on some blind stupid strategy youve heard about. This is why this is indeed VERY FUCKING HARD and most, if not everyone has busted an account or two before realizing just this. Your dumb.. your not going to be super rich within 1 year.. You can not start with 500$ account and make millions! (some might have been able to do this, but know that for every winner, theres 999 loosers behind him that failed... Might work fine first 5 trades, then 1 fuckup tho and ur gone.. And lastly: Try using a backtesting software. Its often FREE!!! (on a demo account) and often so simple a baby could use it. If your trading lines and such there exists web broweser "games" and softwares that lets you go "1 and 1 candle ahead" in random forex pairs and that lets you trade as if its "real" as it goes. A big backtesting trap however is backtesting "losely" by just drawing lines and looking at chart going "oh i would have taken this trade FOR SURE!! I would have made so much money!!" however this is not actually backtesting, its cherry picking and its biased beyond the grave, and its going to hurt you. Try going 1 candle at a time doing "real and live" trades and see how it goes. Bonus point!! many people misunderstands what indicators like the RSI is telling you. Indeed something is "overbought" or "oversold" but only compared to the last average of xx amounts of bars/candles. It doesn't tell you that RIGHT NOW is a great time to sell or buy. It only tells you that the math formula that is RSI, gives you a number between 1-100, and when its above 70 its telling you that momentum is up compared to the last average 14 candles. This is not a complete buy/sell signal. Its more like a filter if anything. This is true for MOST indicators. They INDICATE stuff. Dont use them as pure buy/sell signals.. At least backtest that shit first! Your probably gonna be shocked at the shitty results if you "buy wehn rsi is undeer 30 and sell when RSI is above 70". Editedit: Huge post already, why not copy paste my comment with an example showing the difference in trend following vs mean reversion: The thing about trend following is that we never know when a trade starts and when it ends. So what often happens is that you have to buy every breakout going up, but not every breakout is a new trend. Lets do an example. Check out the photo i included here: https://imageshost.eu/image/image.RcC THE PHOTO IS JUST AN EXAMPLE THAT SHOWS WHY A TYPICAL TREND FOLLOWING STRATEGY HAVE A "LOW" WINRATE. THE PHOTO IS NOT SHOWING AN EXAMPLE OF MY STRATEGIES OR TRADING.
We identify the big orange trend up.
We see the big break down (marked with the vertical red line) this is telling us we are not going higher just yet. Our upwards trend is broken. However we might continue going up in a new trend, but when will that trend come?
We can draw the blue trend very earyly using highs and lows, lines up and down. Then we begin to look for breakouts of the upper blue line. So every time price breaks upper blue line we have to buy (cus how else are we going to "catch the next trend going up?)
As you can see we get 5 false breakouts before the real breakout happens! Now if you could tell fake breakouts from real breakouts, your gonna be rich hehe. For everyone else: Take every signal you can get, put a "tight" stop loss so in case its a fake signal you only loose a little bit. Then when breakout happens as you can clearly see in chart, your going to make back all the small losses. So in this example we fail 5 times, but get 1 HUGE new trend going further up. This 1 huge trade, unless we fuck it up and take profits too early or shit like that, is going to win back all those small losses + more. This is why trend following has a low winrate. You get 5 small loss and 1 big win. Now lets flip this! Imagine if your trading Mean reversion on all the same red arrows! So every time price hits the blue line, we go short back to the bottom (or middle) again! You would have won 5 trades with small profits, but on that last one you would get stopped out so hard. Meaning 5 small wins, 1 big loss (as some have pointed out in comments, if you where trading mean reverting you would wanna buy the lows as well as short the tops - photo was suppose to show why trend following strategies have a lower % winrate.) Final edit: sorry this looks like a wall of text on ur phones.
A lot of people over complicate Forex and will see some bizarre strats e.g MACD, EMA, ITCHI and RSI.Sooo whats the problem with that hypothetical strat? It has 3 Trend indicators in it which doesnt really make much sense does it? why would you need 3 indicators all to tell you the same thing? They dont exponentially increase likeliness of being right with more of them. So why do people do this (and why did i do this?) Because they kinda just grab some indicators they've heard some good things about and chuck them together or even just random default ones, none of which serve a purpose to painting the picture of the market. How to start using indicators to paint the picture of the market? Before i get into it and the PA brigade come, it is completely possible to spot all the things im going to list below with just price action and your noggin, but it takes a lot of damn work. When you actually break the market down it becomes a lot simpler and when i was given this by my mentor it took me on a much better path in forex. The market is comprised of 4 components;
Support & Resistance - S&R is there to make sure there is a reason for it to turn around at this area
Trend - To confirm the new trend
Momentum - Momentum is there to find area's where price is in extreme's
Volatility - Volatility to make sure it has enough Volatility for it to turn around
I use this formula as the basis for all my strat's and my Mentor use's it aswell, its incredibly simple but often incredibly over looked. Example's Of Trades I have labled 1 to 4 on images and they relate to the Forumula above, explanation will be below Trade 1 📷https://gyazo.com/c257d8790abea2083416fbc9643bdf3e 1 + 2 = Itchi (trend) and BB (Volatility) BB was broken and Itchi changed to upwards. 3 = SR that our EA placed 4 = Momentum changed. Trade 2 https://gyazo.com/6ed328786f832266e4f488d5788b930d (1,2,3,4 is the same as above) Trade 3 https://gyazo.com/9989a9ae5aa1be6c7042d1e87842181d (1,2,3,4 is the same as above) Any questions shoot away EDIT: Exits; Exits are based on the same formula, a TL:DR would be i need all 4 parts of the market to enter and only need about 2 or 3 to exits (some times 1 in rare cases) EDIT: Because people cant understand what i mean by this "A lot of people over complicate Forex and will see some bizarre strats e.g MACD, EMA, ITCHI and RSI.Sooo whats the problem with that hypothetical strat? It has 3 Trend indicators in it which doesnt really make much sense does it? why would you need 3 indicators all to tell you the same thing? They dont exponentially increase likeliness of being right with more of them." I am NOT ripping on indicators at all im "ripping" on people (who like my self) used to make the mistake of taking random indicators and having multiple indicators telling you the exact same thing, in the majority of situations you do NOT need multiple trend indicators, multiple volatility indicators or multiple S&R indicators. Majority of the time you need ONE indicator for each as using 5 trend indicators does not increase the chance of them being correct by 1000's of %, the one that I use multiple of is the oscillator, its a custom built one that is then scaled up so the medium and long term one is just the short term one scaled to higher time frames to get a larger picture
Auf der Suche nach starken und präzisen Forex Signalen wollen wir das RSI Trading mit doppelter Divergenz nicht unerwähnt lassen. Dieses Signal basiert auf einer klassischen RSI Divergenz, nach der eine zweite klassische Divergenz erforderlich ist, um das Signal zu validieren. Quelle: MetaTrader 5 USDJPY H1 Chart, Datenspanne: 21. Januar 2019 bis 31. Januar 2019, abgerufen am 18. November ... Relative Strength Index (RSI Indicator) is an indicator developed by Welles Wilder. Learn about RSI Trading Strategy and find out the RSI Formula. However, thinking that you already know everything about RSI Forex trading strategies can be a big mistake. Therefore, in this post I'm going to show you seven different ways to trade, using the RSI indicator. If this is a method that you are currently trading or testing, then you might want to experiment with some of these methods. To make things interesting, I'm also going to do a quick ... RSI = (100 - (100 / (1 + RS))) Seems simple enough, but the RS part need to be calculated first. RS = 14-day EMA of upday closing gains / 14-day EMA of downday closing losses. EMA stands for Exponential Moving Average and is used to smooth out an average of a series of values. So what we want to do here is to take a 14 day exponential moving average of the upticks days and downtick days ... The RSI look back can also be measured in weeks, hours or minutes. ... A Forex Price Action Trader’s Guide to Outside Bars; RSI Indicator Explained: Calculation and Definition Disclaimer: Some links on this page are affiliate links. We do make a commission if you purchase through these links, but it does not cost you anything extra and we only promote products and services that we personally ... This page is a detailed guide how to calculate Relative Strength Index (RSI). You can see how the formulas work in Excel in the RSI Excel Calculator. The calculation is explained in detail in chapter 4 of the calculator’s guide. RSI Calculation Formula. RSI = 100 – 100 / ( 1 + RS ) RS = Relative Strength = AvgU / AvgD; AvgU = average of all up moves in the last N price bars; AvgD = average ... RSI Analysis in Forex. RSI Analysis in Forex consists mainly of recognizing the signals described above. We will now illustrate each of the signals so you will get a better sense of how to analyze your chart using RSI. The image above shows how a RSI Overbought signal may appear. The RSI line breaks into the 70-100 area first. This creates the overbought signal. The price then moves out of the ...
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