After being in the foreign exchange game for several years, I have seen how desperate and misled people are when they go and search for a manual trading system they can use to succeed. In general, you always find website that offer general advice but fail to accurately portray the trading system or you find websites that suggest the use of a given set of trading signals with no reference whatsoever to any money management technique.
As you may know, any successful trading strategy must have entry rules, exit rules and adequate money management. As I have said on a recent post, money management must take into account you risk level, your equity and the current state of the market. Of course, the entry and exit of a manual trading strategy should also adapt to different market conditions, contrary to an automated trading system, manual trading has the advantage of trader discretion which can be exploited positively to maximize returns when compared to any given fully mechanical set of rules.
What I am going to describe now is one of the systems I use to trade the forex market manually. This system does not have very rigid rules and is therefore dependent on the traders knowledge of the market to succeed. However, I believe that trading manually always demands this, doing anything different would just reduce your manual trading to the level of a machine, something for which we have automated trading systems. One very important aspect of this foreign exchange trading system is that the money management is very clearly defined. Since this is the most important aspect of trading, it will most likely bring good profits to forex traders.
The system is very simple and uses no indicators whatsoever. What we will do is trade support and resistance levels (I do this on the EUR/USD daily chart). What I do is pretty simple, when a support or resistance level is reached, I place two pending orders around the level, located at a distance of 25% of the previous daily bar away from the level. One order will favor a breakout and the other will favor a reversal. Now, after we have an order triggered I will set the stop loss and take profit so that I have a 1:3 risk to reward ratio on the trade using the next historically important support or resistance level as takeprofit (note that the stoploss must be below the inital resistance or support level or I will not take the trade, because of the risk of a retest). The lot size traded will be such that if the stop loss is hit a loss of 2% of equity is incurred. This system ensures that both lot size, TP and SL are adjusted dynamically and always keeps the trader at a very favorable 1:3 risk to reward ratio which is the level of risk most proffesional traders are willing to take. The daily resistance and support levels work like a charm and the strategy will give you overall profits if your discretion about these levels is accurate.
Of course, as you see, the location of the support and resistance levels and the placing of the take profit is completely discretionary so the trader should be familiarized with how these levels work. Most traders will have no problem visualizing these levels after a year or so of looking at currency pair charts. Similar simple trading techniques based on discretionary trading of support and resistance levels are used by several successful proffesional traders and fund managers around the world. It is a powerful technique and removes fear and greed from trading as it encompases solid trading principles. Remember that fear and greed are no more than the manifestation of ignorance.
If you would like to learn more about the automated trading systems I have developed and how you too can design, program and trade long term profitable systems on the foreign exchange market please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
As you may know, any successful trading strategy must have entry rules, exit rules and adequate money management. As I have said on a recent post, money management must take into account you risk level, your equity and the current state of the market. Of course, the entry and exit of a manual trading strategy should also adapt to different market conditions, contrary to an automated trading system, manual trading has the advantage of trader discretion which can be exploited positively to maximize returns when compared to any given fully mechanical set of rules.
What I am going to describe now is one of the systems I use to trade the forex market manually. This system does not have very rigid rules and is therefore dependent on the traders knowledge of the market to succeed. However, I believe that trading manually always demands this, doing anything different would just reduce your manual trading to the level of a machine, something for which we have automated trading systems. One very important aspect of this foreign exchange trading system is that the money management is very clearly defined. Since this is the most important aspect of trading, it will most likely bring good profits to forex traders.
The system is very simple and uses no indicators whatsoever. What we will do is trade support and resistance levels (I do this on the EUR/USD daily chart). What I do is pretty simple, when a support or resistance level is reached, I place two pending orders around the level, located at a distance of 25% of the previous daily bar away from the level. One order will favor a breakout and the other will favor a reversal. Now, after we have an order triggered I will set the stop loss and take profit so that I have a 1:3 risk to reward ratio on the trade using the next historically important support or resistance level as takeprofit (note that the stoploss must be below the inital resistance or support level or I will not take the trade, because of the risk of a retest). The lot size traded will be such that if the stop loss is hit a loss of 2% of equity is incurred. This system ensures that both lot size, TP and SL are adjusted dynamically and always keeps the trader at a very favorable 1:3 risk to reward ratio which is the level of risk most proffesional traders are willing to take. The daily resistance and support levels work like a charm and the strategy will give you overall profits if your discretion about these levels is accurate.
Of course, as you see, the location of the support and resistance levels and the placing of the take profit is completely discretionary so the trader should be familiarized with how these levels work. Most traders will have no problem visualizing these levels after a year or so of looking at currency pair charts. Similar simple trading techniques based on discretionary trading of support and resistance levels are used by several successful proffesional traders and fund managers around the world. It is a powerful technique and removes fear and greed from trading as it encompases solid trading principles. Remember that fear and greed are no more than the manifestation of ignorance.
If you would like to learn more about the automated trading systems I have developed and how you too can design, program and trade long term profitable systems on the foreign exchange market please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
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1 comment:
Hi Daniel!
Would be nice to see some more posts (kinda trading journal)about this strategy how you use it in practice. With some chart screenshots.
Best regards,
Gabor
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