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 hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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