MercenaryTrader.com

I found something that I believe it highly valuable for all traders... 

MercenaryTrader.com

I found a link to MercenaryTrader in a book by Peter Brandt, which is also in the list of my top trading books. 

Ok, that's it. I felt like sharing this. Great stuff.

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.

Your Account Balance chart - simulation tool

Your equity curve Monte Carlo simulation tool

Intro

This is to share my tool to simulate how your account equity curve may look like, given your assumptions of a win ratio and a reward to risk ratio.

Qualify a trading setup

How to qualify a trading setup? 

Here is what I recommend that you do if you are serious about trading a given setup: whether it is a pinbar, or a 1-2-3 pattern, or any other price action or other trade opening setup for that matter.

This is a critical step, a milestone, in the discovery process of your own trading system, a system that is right for you, that you will be able to trade effortlessly once you are ready. The setup is a key building block of the trading system.

It takes a lot of work, you may need to to practice like Patton's soldiers, but here is a specific action plan I followed, and I will follow for new setups I am learning to trade:

Trade opening filters

Trade opening filters

To have a complete trading system you need trade open criteria, entry method, initial stop loss placement, trade management plan, positing sizing method. For a complete trading plan, you need to add list of markets, broker, computer, trading hours, mental preparation, emergency plan, etc.

This article talks about one component of the trading system, i.e. filters you can use to decide if to open a trade.

Filters

Filters are criteria that needs to be met for you to open a trade. This is a list of things that, if not met, you do not open a trade. A good filter will eliminate losing trades. It will also occasionally eliminate a wining trade; that's trading. 

Confluence factors for trade opening

Confluence factors for trade opening

A complete trading system building blocks include open criteria, entry method, stop loss, closing method, position size algo, etc. But there is more.

This article talks about one more component of the trading system, i.e. confluence.

Trade opening setups

Trade opening setups

To have a complete trading system you need trade open criteria, entry method, initial stop loss placement, trade management plan, positing sizing method. For a complete trading plan, you need to add list of markets, broker, computer, trading hours, mental preparation, emergency plan, etc.

This article talks about one component of the trading system, i.e. possible setups you can use as a trigger to open a trade and place your entry order (order type will depend on entry method).

What would General Patton say about trading

General Patton speech to his soldiers during the World War II... here is what I imagine he would say to his Traders :-) 

Credit. This is where I took the idea from, the fxmonster.pl blogger who posted a speech of Patton to traders, in Polish. Here I found the English original. Version below, I created based on fxmonster's idea and the original.

Read on if you are OK with some profanity, as in the original version...

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.

My SDH1 trading system - part 2

This is a part 2 of my Supply & Demand trading system on H1 charts traded End Of Day

In part 1 I covered foundation: way of chart analysis, approach to markets, what markets I trade, risk management rules.

In this part I share specifics to offer a complete trading system: entry setup (what exactly needs to be printed on chart for me to enter my orders), entry method (order type and placement), initial stop loss, way to manage the trade, and other considerations such as news, higher timeframes, confluence with other factors, etc.)

My SDH1 trading system - part 1

Supply & Demand trading system based on hourly timeframe

I call this SDH1 system

SD stands for Supply & Demand and H1 for hourly timeframe. This is one of the two systems I trade.

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. 

Your trading system

What is it  that you absolutely need  to become a profitable trader?

Your own trading system

According to various sources, almost all top trading books and blog of top traders agree that having a trading system is a critical thing to become a pro trader (there are other things as well, such as right mindset, discipline, risk management rules, treating this like a business, which I all plan to cover later)

OK, so what is a trading system?

Among many definitions, the most useful for me is this: as a minimum, the trading system tells you when to open a trade, when to close a trade and how big position to trade.

So we have

• trade open criteria - i.e. when and how do you open a position. By "when" I mean the entry filters such as "trend is up" as defined by the slope of EMA 20 on daily for long position, the entry criteria such as bullish pinbar or price touched the demand level on H1. By "how" I mean the entry method: at market, with a limit order, with a stop order (e.g. buy on the break of last bar high) and criteria where to place the order. 
• trade close criteria - i.e. how an when you will close your position, either at loss (stop loss order hit or manually before the stop was hit) or at profit (take profit limit order hit, or trailed stop hit or manually). There are many ways and I plan to cover it. 
• position size - i.e. how many lots (mini lots, micro lots) , in other words, currency units, or stocks or future contracts you will trade. Obviously bigger position size means larger win or loss. And it has to be set correctly to manage your risk. Never risk more than you are comfortable with losing per trade. Always, first decide where is a logical place to place a stop loss, then calculate your position size in a way that, if your stop is hit, your loss will be manageable. One of the great advantages of forex is that you can do exactly this. 

For a complete trading plan, which I will cover later, but to state upfront, you need a few more things clarified in your head and ideally on paper, and follow it. This includes:

• which markets you trade - forex majors, exotics, stocks, indexes, commodities; spot, future or CFD or ETF
• which broker you use - Market Maker or ECN/STP, reliable, in your home country or offshore, how about taxes
• how you are organized - logistics, time of the day when you open orders, monitor positions
• how to maintain your trading journal - list of each trade, criteria, learnings, results
• backup plan in case of emergencies - computer down, broker bankruptcy, fraud, etc. 
• how to assess quality of your trades - checklist
• your trading system description - your own trading rules, written down, with all criteria, decision tree, and examples, lots of examples! You need to have at least tens of trades examples of your system, to master it. 

Feel free to follow this blog via e-mail or news feed, there are links at the bottom of the page.

In the future posts I plan to cover trading systems types and their characteristics, and how to find the one right for you.

What is High Quality forex trading?

What do I mean by "high quality" forex trading? i.e. this blog title and the HQForexTrading.com domain that I registered for this blog.

This is a big topic, and this whole blog will be about this, but here let me start with a high level list, each point deserves an article or more...

What is a High Quality trading?  it is.. 

• following your trading plan
• trading the high quality setups only (I will explain later what exactly I mean by that)
• managing the risk - always use stop loss orders and trade the right position size
• document your trades in a trading journal
• approach trading with the right mindset (much more on this) 

That's it for now, but this list is far from complete.