The Complete Forex Traders Guide Book

[marc walton]

The following article was written by member Ronan O. He explains where he looks to enter, place his stops & targets. It just about encapsulates everything that would take me 100's of pages to write Ronan is yet another full time trader/forex mentor pro member who has been where you may be now & come out the other side & now enjoys the rewards that go with it. Here is Ronans forex trading history:

"I have been trading for just over 2 and a half years, I have made all the mistakes everyone does, I have blown 2 accounts on the way to becoming consistently profitable and now it is my main source of income. I think of the 2 accounts I blew as college fees. Any job that pays 6 figures a year requires education and that was the cost of it.

I fell for sites that promised the earth etc, only to realise that these guys were not great traders, just great sales men. Been with FMP 7 months now, one of the few honest sites and tell it how it is, Well done to you both."



Would you get into a car not knowing where you were going!

A trader without a trading plan is the same a driver not knowing where they are going. If you do not know where you are going how do you expect to get to the end?

At the start of my trading career would see what I though was a trade set up, then wait to see if it was confirmed, and then I would push the trigger (usually about 20 – 30 pips after it met my entry) and would now be chasing price, and as usual my stop loss was hit, oh I forgot to tell you I would work out my stop loss by looking at the ceiling!!!!.

Having a trading plan is as important as London Taxi driver having the A-Z!!!! (Those of you not from Europe, the A-Z is a road atlas in the UK). It is a very important part of the puzzle to get you on, and keep you on the road to becoming a consistently profitable trader.

A lot of traders who are learning the business will remember to say to themselves to do a trading plan for each trade, but not do it, they don’t see the importance. Then they get into trouble and watch their account go up in smoke. They trade with emotion; you cannot allow emotion to come into your trading. But that is another story (A good short book is Emotion Free Trading if you get the chance to read it).

We talk about discipline and making a trading plan for each trade is part of that discipline. Any successful trader will tell you they make a plan for every trade and will tell you the importance of it.

Also patience, Patience and discipline are what makes up a trader. Have the discipline to Plan your trade and then the patience to let it play out. Now I am not saying that by planning your trade and then having the patience to carry it out will make you have 100% winners, not at all. However your winning % will improve dramatically.

Now you come to the next hurdle, when you see your account rising, you must keep the Discipline that got your there in the first place, this is the reason why so many traders ride the cycle of the boom and bust system. Being aware of this danger along will help you keep that patience and discipline. If you do forget what got you there you will sabotage your account trust me.

Ok so I have gone off on a tangent now, so what exactly goes into making up a trading plan? That is a question with a lot of answers; all I can write is what goes into mine. Remember making a trading plan is only one part, you then have to actually carry out your plan.

Look for your entry:

Look at the trend on the higher time frames, Daily, Weekly and finally 4 hour charts. Look for support and resistance and if price is at either of these levels, I look for a candle pattern to tell me that the support or resistance is going to hold. It may be a pin bar, evening star, morning star, bearish engulfing, bullish engulfing, dark cloud cover, piercing line etc.

Ok so we now have our entry, we now need our stop loss. I look on different time frames for forms of resistance (lets imagine I am planning a short position), Have I got any EMAs above price, have I got any pivots, daily or weekly, Is there another level of resistance just above this level etc. What I am looking for is multiple reasons and multiple levels of resistance between my entry and my stop.

Ok for the sake of this, let’s say I have a EMA 10 pips above, a 61.8 of my daily fib 20 pips above, the weekly pivot is 32 pips above. Do now I have 3 forms of resistance between my stop loss and my entry. So my stop is going to be 32 pips + the spread (let’s say 3 pips) + 2 pips = Stop Loss 37 pips.

Ok so now I have my stop loss, my entry what about my lot size?. I work out each trade to 2% of my account (and I have a rule that I never risk more than 5% of my account at any one time i.e. if I place trades and have risked 5% of my account across 3 trades and I do not yet have my stop loss to break even then I cannot take any more trades). Let’s say we have an account of 10K, so let’s do the maths

2% of 10k = $200, so we are going to risk $200.

Now we need to know how much a pip is worth for our stop loss. $200 / 32 = $6.25c

So now I know that each pip is worth 6.25 and I will not lose more than $200 on this trade.

Now we need our targets. During these summer months I follow these rules. 20 pips I take 1 third off my trade and my Stop moves to break even. , 40 pips I take the second third off my trade and the trailing stop kicks in.

I would have looked for targets that would be around those levels for my targets, but I do prefer to leave my final third run with a trailing stop. You will be surprised how far it goes. Of course you do get your stop taken out, but the times it does run far outweighs the time it does not.

So in a nut shell that is how I plan a trade. I use different time frames. I never take a signal off any time frame lower than the 1 hour chart; I do prefer the 4 hour chart. Do not get greedy, when price hits your target take it off, do not think “Oh I will leave it on just in case it goes further” That is greed, when it hits it bank the coin.

WHEN YOUR GREEN TURN OFF THE MACHINE!!!

[raa]

This article is simply outstanding. All well-known, but so well-put. I follow same principles although am lacking a discipline in regards to writing down a trade plan and trade log.