May 11, 2011

3 Things To Do Before Trading

3 Things To Do Before Trading

"Trading impulsively is the sure-fire way to destruct your account"

I know. Because I have done so.

Buy when the price goes up. Sell when it goes down. 
However, after I put my position the market 'always' going against my order. 

After I blew up one account after another, I start to make it a habit to step aside before taking any action. Especially when I thought that this trade will be perfect!

So, I found doing certain things before taking any trade would help me to trade better

  • Calculating Daily Range

    • Impulsive trader like to wait for the price to go to their expected direction, and after it reaches the peak of the move they enter the market. It will go against them in no time. 
    • This happen to the 'Fear' factor in our mind. The saying, "If I don't see it, I won't believe it" is responsible for it. Human are always in fear to what they don't know. Therefore when they are trading, they will wait to see the price going on their behalf.
    • To reduce the pressure to impulsively trade like this, We can try to calculate the average daily range. 
      • For example, if EUR/USD tend to move 178 pips/day (like shown in the picture) and the 'pips to open' is -20 (20 pips below the open price) there is still probability to achieve a profit of 100+ pips if we put SELL position.
      • How if the market goes against us, like always? The answer is, there is no perfect system therefore before any trade, you should be ready to suffer a loss.

  • Determining Market Direction
    • What I mean is to identify the trend. 
    • Use Moving Average indicator to identify the trend.
    • Avoid to trade against the trend.
    • CHECK THE NEWS! Sometimes there is a news significant enough to change the market direction.

  • Determining Possible Market Levels
    • Pivot and its Support and Resistance Levels already helped many traders that decided to respect them.
    • There is no perfect technical indicator. But, Pivot Levels are important because the forex major players are using them. 
    • It is a logical decision to put your stop or limit near the pivot and its levels. Logic defeats impulse most of the time.

To Trade Better is a Matter of Choice
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About ArrowFX

Technically analyze the forex market mainly on USDJPY, EURUSD and GBPUSD by using market rhythm method started by Philip Nel on Forex Factory. The thread started on 2007 and still alive.
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