Trend or Range?

Ask yourself the following questions to plan your trades and to come up with a system?

Market has different phases, and different strategies are made for different phases. If the market is trending up, your ranging strategies won't work and vice versa for the trending market.

So your first step should be to determine if the market is trending up or down, or if it's a sideways (choppy) market. This step is a pre requisite to which strategy you use. Break out will work when the market is a choppy market, buying a pullback will work when the market is trending.

If the market is trending, how do you know if there's going to be a pullback or a reversal? If you are using Fibonacci and it's a pullback, how do you know which fibonacci level the price will hold? Some people may use candlestick patterns (which does add odds to your favour), some people may use indicators.

Do you prefer naked charts and price action or do you prefer indicators, people suggest that price action is best but is it? I don't agree, I have spent long time studying both and traded both, you can't say one is better than the other, keeping your system simple is best but what really matters is how you make money? If you know which kind of a market is it, and you use the right strategy, everything works.

Moving Averages are a lagging indicator but if it the market is trending, they are pretty good, and yet when the market is choppy, it simply doesn't work.

Or you could use price action to determine your trade enteries and indicators to confirm. These questions are really important because for consistenty, you need to trade the same system over and over again, you can't keep changing your systems every other week, you could write a journal and learn from mistakes. How did people find out the moving averages work in a trending market and not in a choppy market, by a journal and backtesting.

I hope you analyze the above questions before you start trading. Also, if you have a full time job, do not leave your job, until you have started making money consistently for atleast a year and you have enough funds to survive.

"Holy Grail Systems"

People often ask me if they should buy this "so called Holy Grail System" they received emails about claiming you could start making £10000 a month by reading their 5 - 6 pages long ebook.

Is it possible? Could you become a doctor in a month? Could you become a lawyer in a month? Could you become a professional programmer in a month? Ofcourse not.

Trading is not easy, it could be simple but it involves many things. Using certain indicators from ebooks are not going to help you make money in 3 days. The key is consistency, making money once or maybe 10 times in a year is not going to help you.

Trust me I have bought several systems, ebooks, indicators - tried them, tested them and came to only one simple conclusion: RUBBISH.

Let me ask you a simple question: If you are a proper trader, would you need to sell your trading system for a small price (as compared to what you could be making while trading)? Would you put your focus on trading or selling? Also, traders don't give away their systems, they could give you bits & pieces but not complete systems

This blog is not going to sell anything. What I am going to give here is what I have learnt from my mistakes, and the only aim here is to help new traders learn from my mistakes before lossing any capital.

Money Management

The first lesson I learnt (hard way) when I started trading was to manage my money and risk & reward ratio. Let me ask you a simple question? If you toss a coin, what's your probability of winning? 50%? Right?

When you enter into a market randomly, you still have 50% odds in your favour, What if I tell you that you get £9 everytime you get heads, and loss £3 for tails, and you win 50% time. Are you making money or losing money?

So to illustrate my point, out of 10 times, if you get 5 heads and 5 tails, you would still end up making profit.

5 * £9 = £45 for heads and 5 * £3 = £15 for tails, so £45 - £15 = £30.

This is called Risk & Reward ratio. In the above senario, my risk & reward ratio is: 1: 3. 1 profit = 3 losses. The same principle applies to trading.

Now back to Money Management, the above senario wouldn't have been possible if I had gamled the above ratio on just 1 trade. Ideally, you should not loss more than 5% of your capital in any trade. That gives you 95% more time to apply the above risk & reward ratio adding it to your probability.

So before you come up with a strategy or start using somebody else's strategy, make sure that your risk & reward ratio is reasonable. Personally, I wouldn't trade anything below 1:3 ratio. When working out a ratio, you also have to make sure that your risk & reward ratio is feasible, if you are trading a 1 hour chart, and your target is 30 pips, then SL at 10 pips is too risky considering you would pay 3 pips spead + volatility.

Risk & Reward ratio has to be practical. If your risk & reward ratio is 1:1, then you need higher success rate, if your risk & reward ratio is 1:3, even 50% success rate would make you money.

Welcome

Hello, my name is Talha; I am a Senior .Net Contractor but before that, I am a trader. I like to trade Forex, Futures, Stocks, CFDs etc. I am creating this blog to share what I have learnt in last 5 years, if you are looking for a Holy Grail System, please go and visit some so called "Holy Grail Sites", this blog is to share my simple strategies, and a journey to make money for living not to become a millionaire in 2 days!

So please come and join me in this wonderful journey.

Although, it's my blog, I invite you to leave your comments, your experiences and your opinions about my comments.