Trading-Tactical Approach The major distinction between pro traders and others are deeply associated with their trading approaches. Depending on the approach some will grow up as pro trader and some will go to the paths of gambling. Unfortunately, there is tremendous tendency for people to want to follow a guru, or anyone who speaks with authority instead of developing their own skills and without awareness they fall to the latter category. So, I will share with you my experience of how I am developing my skills (I must say that I am still on learning curve). “House Building” is my concept to build competitive edge in trading business.
(Figure 1)
The principle of gaining skill in trading is a like building house. You need strong foundation, floors, walls, pillars, windows, ceiling and roofs. The “House Building” concepts I used will provide you with a powerful idea on trading methodology. Your intra-day decisions will be better timed and you will have more confidence when you use all of these tools. Figure 1. Trading HouseFoundation-Discipline. You must have a strong base for a profitable structure. To build base in the trading is the discipline (the foundation). Without building the foundation first, you are likely to jump in to trade and burn yourself and never learn it properly. Without discipline, you cannot implement trending trades and running your profits longer or cutting losses earlier. So, it is the key foundation to lay strong discipline before start doing anything else. Floors- Strategic Plan. Strategic plan will give you overall picture of how you trade. It is basically know what you are going to do in various trading environments, defining risks and understanding what and how you are going to make the most money. Four Pillars I think there are four pillars/skills you need to learn and sharpen to grow as professional trader.
Pillar 1 -Psychology. Psychology is one of the most important pillars of trading. Because it involves our decision making process and deeply rooted in our nerves system at subconscious level. If we are not aware of it the biased decision will not be corrected. A lot of research was made trading psychology and one of the good books written by Richard L Peterson [Inside the investors Brain] states that much of optimal financial psychology lies in the self-awareness and self-control of limbic (emotional) impulses. The limbic system has two major divisions of relevance to investing—the reward pursuit and loss avoidance circuits. Reward pursuit involves everything from how people value various prospects to how positive and motivated they feel toward obtaining desired goals, to their search for novelty. I have two rules when it comes to risk for traders. The rules are this: 1. If the specific risk of a trade is not known, then don’t do the trade.
2. If the risk is too great, don’t do the trade. That risk is often defined to a specific price. The reason the level is so specific is that successful traders will tend to look to trade at prices near turning points—near levels. Successful traders get used to doing those trades that they see as being profitable. They also look to do trades at levels that limit their risk.
Pillar 1- Technical analysis. Your trading system should be giving you overall picture of the market, entry and exit points clearly. That is all you need. Keep it simple as possible. It is important to begin by observing a longer timeframe and get sense of overall trend. Always keep an eye on the traditional indicators, such as tests of price support and resistance. A test that does not break through often results in strong movement in the opposite direction. It also defines the structure of a trading range. Also, moving averages provide good overviews of direction and identifying patterns helps to make good decision. Sense the market ebbs and flows.
Pillar 2-Fundamental analysis. We just need simply to know what the overall market is doing, example, market sentiment, and strength/weakness move individual currency. Use bigger picture and assemble the crumbled parts of the market for exit and entry. Watch the key economic, political indicators of majors.
Pillar 3- Money management Ceiling-Implementation plan. If you can, please do not use excessive leverages, that is your money management and help you to withstand the bigger market waves without getting wiped out. You should never expect to operate at 100%, meaning you buy at absolute low, and sell at absolute high. Most of market operating or profit making environment is hidden in the grey area. Black and white areas are the zones where crowds come and lose money.
Roofing-Systematic and consistent. When you apply the trading system, strategy consistently, it becomes part of you and emotion will be reduced significantly. This rule is a way to remain disciplined about your trading and it comes directly from a trading plan. There should be no doubt what you should be doing when you follow the rule. Lightening- Intuition. Once you follow your system and written on your subconscious levels of your mind, your trades will be intuitive! You will be surprised with your decisions. Top-Growth. Do not pay attention for money, but pay attention on your methods and systems. Money is added product-bonus if you sharpen your skills.
