This article written by Stuart McPhee was originally published in the January 2014 issue of Traders' Magazine.
Trading Forex provides an excellent opportunity to earn additional income, or even as a full time career. But too many traders set out without arming themselves with some basic rules and guidelines to follow and the markets are quick to teach them the lessons. We asked trader Stuart McPhee to reveal some of his tips for starting out successfully.
Determining precisely when to initiate a trade may be one of the most difficult decisions foreign exchange (forex) investors face. It is what is referred to as the entry signal and figuring out a consistent way of entering and exiting a position is an extremely important trait for all traders to have.
Most people trade forex randomly, indiscriminately, and without any process or methodology. These folks will stare at a chart to see if something jumps out at them. Even if they have to stare at it for a few minutes, they will keep on looking until they find something.
A trading opportunity may magically appear because a chart looks strikingly similar to one that they saw in a book they read on the weekend. Maybe the author of that book said to trade it, so they do, even though they have never traded for the reasons outlined in the book and may never again. That is not trading with consistency and it is a terrible way to look for new trading opportunities.
The author often talks to people about his three “c-words” concerning trading: comfort, confidence, and consistency. You need to be comfortable with the level of risk you are taking when you trade, a healthy dose of selfconfidence, and a trading plan that suits your personality that you consistently apply each and every time.
When looking at a chart, the author could tell you within a second whether or not it is a likely opportunity for him. How? Based on his own personal trading plan, he knows what his strategy is, and he knows exactly what it looks like on a chart because he has seen it thousands of times.
You, too, should consider committing to mastering one trading set-up and executing it consistently. Take a mental picture of what your perfect set-up looks like and burn that template into your mind. Now, when you see a chart that doesn’t match your template, you are able to eliminate it quickly and move on.
- Stuart McPhee is OANDA’s Currency Technical Analyst. He specialises in technical market analysis of major currency pairs. He is the author of several bestselling trading books, most recently the fourth edition of his popular book “Trading in a Nutshell”. He produces articles and videos on the how-tos of technical trading. Based in Australia, Stuart speaks at conferences and events worldwide.
Trading Forex provides an excellent opportunity to earn additional income, or even as a full time career. But too many traders set out without arming themselves with some basic rules and guidelines to follow and the markets are quick to teach them the lessons. We asked trader Stuart McPhee to reveal some of his tips for starting out successfully.
Determining precisely when to initiate a trade may be one of the most difficult decisions foreign exchange (forex) investors face. It is what is referred to as the entry signal and figuring out a consistent way of entering and exiting a position is an extremely important trait for all traders to have.
Most people trade forex randomly, indiscriminately, and without any process or methodology. These folks will stare at a chart to see if something jumps out at them. Even if they have to stare at it for a few minutes, they will keep on looking until they find something.
A trading opportunity may magically appear because a chart looks strikingly similar to one that they saw in a book they read on the weekend. Maybe the author of that book said to trade it, so they do, even though they have never traded for the reasons outlined in the book and may never again. That is not trading with consistency and it is a terrible way to look for new trading opportunities.
The author often talks to people about his three “c-words” concerning trading: comfort, confidence, and consistency. You need to be comfortable with the level of risk you are taking when you trade, a healthy dose of selfconfidence, and a trading plan that suits your personality that you consistently apply each and every time.
When looking at a chart, the author could tell you within a second whether or not it is a likely opportunity for him. How? Based on his own personal trading plan, he knows what his strategy is, and he knows exactly what it looks like on a chart because he has seen it thousands of times.
You, too, should consider committing to mastering one trading set-up and executing it consistently. Take a mental picture of what your perfect set-up looks like and burn that template into your mind. Now, when you see a chart that doesn’t match your template, you are able to eliminate it quickly and move on.
Consistency Produces Results
What should your strategy be based upon? Good question. Although it’s related, the answer also leads to an entirely different discussion regarding analysis, probability, profit expectation, and other factors.
Editors’ Picks
EUR/USD challenges 1.1800, two-week lows
EUR/USD remains on the defensive, extending its leg lower to the vicinity of the 1.1800 region, or two-week lows, on Tuesday. The move lower comes as the US Dollar gathers further traction ahead of key US data releases, inclusing the FOMC Minutes, on Wednesday.
GBP/USD looks weaker near 1.3500
GBP/USD adds to Monday’s pessimism and puts the 1.3500 support to the test on Tuesday. Cable’s marked pullback comes in response to extra gains in the Greenback while disappointing UK jobs data also collaborate with the offered bias around the British Pound.
USD/JPY is looking for direction around 153.00 with key US data in focus
USD/JPY reversal from 153.70 has been contained above 152.70 on Tuesday. Major currencies are trading within narrow ranges amid thin trading volumes. Investors await the release of the US GDP and PCE Inflation figures to make decisions.
Editors’ Picks
EUR/USD challenges 1.1800, two-week lows
EUR/USD remains on the defensive, extending its leg lower to the vicinity of the 1.1800 region, or two-week lows, on Tuesday. The move lower comes as the US Dollar gathers further traction ahead of key US data releases, inclusing the FOMC Minutes, on Wednesday.
GBP/USD looks weaker near 1.3500
GBP/USD adds to Monday’s pessimism and puts the 1.3500 support to the test on Tuesday. Cable’s marked pullback comes in response to extra gains in the Greenback while disappointing UK jobs data also collaborate with the offered bias around the British Pound.
Gold loses further momentum, approaches $4,800
Gold recedes to fresh two-week troughs around the $4,800 region per troy ounce on Tuesday. The precious metal builds on Monday’s downtick following a marked rebound in the US Dollar and mixed US Treasury yields across the board.
Crypto Today: Bitcoin, Ethereum, XRP upside looks limited amid deteriorating retail demand
The cryptocurrency market extends weakness with major coins including Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) trading in sideways price action at the time of writing on Tuesday.
UK jobs market weakens, bolstering rate cut hopes
In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months.
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