End of day Trend Following system rules

This is to present an end-of-day trend following trading system rules

Here I will provide specific rules for a trend following system I backtested and I believe it can be profitable.

It is so simple!

It is so simple.

How to become a consistently profitable trader?

Here is the action plan to become a pro trader, in its simplest form:

1. find and learn to trade a profitable trading system
2. execute it flawlessly

That's it.  Simple yet hard. 

I am not there yet. Writing helps me clarify my approach. Those who traded for a while will understand what I mean.

If I had a chance to read this "action plan" a few years ago, I would probably think: "blah, blah, just share a profitable trading system and I can make money". Yeah, this is less simple, now I know. Read on.

Back to basics - Trend Following and Channel Breakouts

Trend Following - and a specific system well-defined

"Trend is your friend" and trend following systems provide an edge, and forex is the right market to trade the trend following systems because it often trends... lots of good books and pro trades say this.

OK, great, but many people including myself ask: "Fantastic, sounds good, I buy it, but how?"  How exactly to trade? How do I do "trend following"?

Read on for my take on the channel breakout system, as defined by Courtney Smith in his book called: "How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life".

It offers a specific, almost mechanical set of rules to trade forex, in a trend following method, on an end of day basis.

Price Action by High Quality forex trading

Price Action trading system

This is my take on "price action" trading. There are many places with similar approach described, and I make no attempt to be innovative here. This is what works for me, and I learned it from many sources, other traders and mentors.

This is what I call Price Action at its core, in a nutshell, simplest, best to make trading Effortless. Now, am I consistently profitable trading this method? I wish I could say yes, let me say , in all honesty, that I believe I am on track. Read on to see a complete approach defined here, incl. how to get organized.

Become consistently profitable in Simulator first

The power of simulated trading

Get a year of trading experience in a few hours!

A very powerful tool available for us on a learning journey to become consistently profitable trades is a trading simulation software.

With a good trading simulator you can "trade" on historical charts. What is great about this is that, unlike in demo, you can fast forward the time :-)  Of course, to get the value of learning, we should not "cheat".

You can literally get a year of experience in a few hours. This is a fantastic way to learn and test your trading system, before you go live.

Enjoy the process and keep learning

Enjoy the process

Today I felt like sharing some of my recent insights on trading.
Here they are: enjoy the process, keep learning.

Let me elaborate a little bit. Becoming a consistently profitable trader is hard, few people are able to achieve this, it requires significant and consistent effort, and it takes time. Given this reality, it is much better, and you will be more effective, and certainly more likely to persist, if you enjoy the process. What to do to actually enjoy it?  Well, it is a matter of mindset and attitude isn't it? Surely we should take out the monetary pressure away, while we learn. Trade small size, focus on high quality execution, not on making money.

Building blocks of the trading system

Trading System building blocks - for a complete trading plan

I said on this blog that to be consistently profitable,  you need to have your own trading system.
What makes me think so? Top trading books and insights from experienced traders.

How to create or discover the trading system that is right for you?

Let's have a look at the building blocks of the trading system, i.e. its elements, so that you are clear on what you need to decide on and write down as you create your own trading system. [ You may have a look at my trading system ]

Building blocks of the trading system

Without getting into discussion on what element is the most important, e.g. trade opening criteria, or the way to close the trade, or position sizing method or psychology, let me just say that ALL the things mentioned below are CRITICAL. Really.

Trading journal

Another thing which you will fail at trading if you do not do it

trading journal key words

Your Trading Journal

Why do I think so? "You need to run a trading journal" is clearly among top pieces of advise, consistent accross good books on trading and in forum posts and stories of sucessfull traders.

Read on to see what it is, how I maintain it and what you get out of it.

End-of-Day trading

Why I choose to trade the markets after hours  End-of-Day

Do you want to allocate to trading no more than 1-2 hours per day?
Do you have a full-time job or a non-trading business?
Do you want to have life outside of trading?

If you said YES to any question above, the End-of-Day trading is likely right for you. 
And you should probably say NO to day-trading.

Top Trading Rules

This is my list of Top Trading Rules

There is no innovation in this list. These are time-tested rules. 

The rules here come primarily from trading books, repeated in many books, stated by successful traders, trading instructors, experienced forum members (usually ones who joined years ago).  

• Trade with High Quality (this is a creed of this blog and my insight) 
• take high quality setups only 
• trade only if the trade is in line with your trading system (strategy, rules, method; I am not talking a mechanical algo here, but flexible trading rules, yet they must be met) 
• trade with the right mindset, i.e. the "quality" of your thinking, state of mind, emotional control, etc. 
• manage the risk (more on this below)
• Have a trading system and follow it
• have your own trading system
• find the system that is right for you (consider timeframes, markets, psychological implications of different systems, your skill level)
• follow the rules of your system
• "discover" your system in process of learning, backtesting, experimenting
• your trading system is your edge, a reason for being able to win in the market
• the trading system tells you when to open the trade (criteria), how to enter it (market, limit, stop, where to place), how much to trade (position size), where the initial stop loss is (e.g. last bar high/low, ATR), how to manage the trade (e.g. close half at first resistance/support and trail stop on the rest, or take profit at 2 times the stop distance, set & forget)
• with a well-defined trading system, you should have no doubt if the entry setup is present or not. You discretionarily decide whether to trade it or not, and how, but existence of the setup should ideally be clear with no doubt
• always have a plan on how you will close the trade, before you opened the trade. follow it. 

Where to start learning about forex trading?

Where to start your learning journey? 

If you are new to forex, here is a few resources to start with, which I used and can honestly recommend.  (I am not making money recommending then, there are no affiliate links here.) 

Education sites

Baby pips
http://www.babypips.com/

FX Street education
http://www.fxstreet.com/education/


I assume my blog readers know the forex basics such as what is a pip, lot, broker, broker types, order types, how to use a trading platform (such as cTrader or Meta Trader 4).  If you need to, please visit the sites above to learn.

Your broker will also likely offer free training courses on how to use the platform. (I am not recommending any broker, I plan to write a post with broker selection criteria)

Books

Here is my post about top trading books list.

Trading journals and blogs of good traders

You can find many journals on forex factory forum at http://www.forexfactory.com/
Blogs, you are reading one of them ;-)  OK, for more, do a search for top trading blogs.

I believe materials above are a good starting point for beginners. Move on if you have seen all that already.

Open on-line courses

Here is a link to my FF post where I mention a vew free open on-line courses with knowledge relevant to trading the markets.

Why trade forex?

Why would you trade forex?

Or what is forex? Foreign exchange, i.e. currency markets, you may read more on wikipedia (new window will open)

Benefits and opportunities of forex trading

• You can make money independently from what is happening in a stock market (with forex you go for absolute returns, not vs. the stock market, you are like a hedge fund manager)
• You can always close your position without impacting the market (whatever position size you trade as long as you are a retail trader; the market is so big that your order has no impact). This is important. It means that your stop loss or take profit orders will usually be executed at the price you set (there are exceptions, but this is nothing compared to less liquid stocks)
• You can manage your risk very well. Yes, although you may have heard "forex is risky", the truth is that if you know what you are doing and follow some simple rules, you can manage your risk very well. You can upfront and exactly decide how much you are willing to lose on a given trade by using the stop loss orders and right position sizing strategy (e.g. adjust lot size in a way that you loss per trade will be just $50 - this is easily possible with brokers with microlots)
• It is a simple market. Note I did not say "easy"... making money trading forex is very hard, but it is simple in a way that you have just a currency pair and exchange rate. No dividends, no earnings reports, no splits, no daily opening gaps. You just have economic news, rollover and price. Forex is simpler than stocks.
• You have 100+ currency pairs to choose from, to look for trading opportunities. You can also focus on just top 5 majors.
• You can use any timeframe, from 1-minute/5-minute combo to daily/weekly. I strongly recommend hourly and above.
• You do not need a lot of capital to get started, unlike with stocks, thanks to leverage. $1000 is enough to start with, and use microlots account and loose no more than $20 per trade (i.e. 2%).
• You can find your own way of trading. Your "system" or method, approach, strategy. Whatever we call it, it is your own approach. In fact, is is said in many books that this is the only way to become consistently profitable.
• Your results totally depend on your decisions! This might be the best of all. You do not depend on your customers, employees, management, not even your broker or FEB chairman or the market. Your results are always a reflection of your own trading decisions! This is a business where you have the full accountability, very clearly. 

Risks

• You can lose all your account deposit or even more. This is likely to going to happen if you violate the risk management rules, such as always use a stop loss (at a broker) and correct position size (number of lots traded).  But isn't it the same with any market? Just that, with non-leveraged markets, if you do something irresponsible, it will take longer to loose all the money. In forex you can blow the account in hours... but again... only if you do irresponsible things such as using full leverage and trade huge position without a stop.

Let me make this question ever broader: why would you trade any financial market? (such as forex, stocks, bonds, commodities)

I will not say here, like in many other places, that you can soon become a pro trader, say bye-bye to your job and become a full time pro trader and trade for living. No. This is extremely hard.

What I am going to say is this: with right dedication, putting some hours of work every day or week, for a couple of months or years, you should be able to achieve a double digit returns every year, regardless of market type, with drawdowns no larger than 15-20%, on a trading capital that you put aside.

If this is not compelling enough, it may be that forex trading is not for you.
But if you have passion for the markets, by all means go ahead and work to learn to become a profitable forex trader.

Good luck!