Question: How do you eat an elephant?
Answer: One bite at a time…
I’ve been taking apart the problem of learning to trade because it finally hit me that my trading practice has totally lacked any sort of structure. All the books etc. talk about finding your own trading ‘style’.
BUT if you just launch into trading it will take you a LONG time to find this because you’re hoping to get lucky and find what works for you by accident…
I’m not explaining this very well… OK, let’s try again. As a newbie trader you look at a chart. If you’ve got half a clue you’re also attempting to figure out what the market is doing and why. For FX you might look at other pairs to see which currency might be stronger/weaker versus the dollar. You place a trade based on a setup (1) and it may/may not work… What did you learn? Possibly precisely nothing.
You look at another chart/timeframe and decide you’re seeing another setup (2) that could be a low risk idea. You enter the trade, it does/doesn’t work and go on to use setup (3) but hey you’re trading so this means you’re focussed very much on the result (cash) and not the process of learning anything… By now you’ve forgotten about your experience with setup number 1 or any lessons learned from it. Probably.
Another challenge I have with teaching myself (which is effectively what I’m doing) is that I cannot sit in front of a price chart all day. Why? I’m actually employed full time. So… what is the plan?
Eat the elephant a bite at a time and do 20(+) trades based purely on bounces off support and resistance.
No, it’s not going to be exciting or ‘svexeh’ (see, I’m down with the youff) but it will mean I will learn all there is (you know what I mean) about one way of entering a trade. When that’s fully internalised I will pick another setup.
I KNOW someone out there will think ‘BORING’ and yes, we’re back at the stage where pre-conceived ideas of what trading is are getting killed. Good. All pre-conceived ideas of what trading is/traders are are wrong anyway… That’s another post title in the making right there.
So here we go… breakdown as follows for learning to trade Setup 1
1. Set an alert for price breaking up/down to a previous level (free SMS price alerts on IG!)
2. IF get an alert go look at the chart.
3. Check that the spike isn’t completely parabolic due to some freak news event i.e. Germany has bought Greece or France has decided to leave the euro 😉 There was at least one of those last week, remember?
4. Enter with a sensible stop (and take a screenshot)
5. THE MOST IMPORTANT BIT… wait at least 25 minutes (my own rule) and manage the trade out
6. Concentrate on picking up as much information from trades that go right as ones that don’t
7. Repeat 20 times – record them all then review how I traded these.
8. Make improvements – do another 20 trades JUST ON THIS etc. etc. etc.
Now, I’m not going to be taking a lot of trades based on this but I sure am going to learn a lot about how price moves in these areas AND how to manage myself in relation to these circumstances.
Some pretty pictures to illustrate what I mean.
I appreciate this probably isn’t a revelation to anyone who’s currently trading profitably and consistently. However it should mean that this high probability, low (?) risk setup becomes properly part of how I trade. Forty of these later without getting distracted and learning from each one, being able to compare them and what happened in/around these trades seems like a logical approach.
Didn’t do this today though due to NFP 😉