In this course will be covering the following topics
- Money Matters
- Market Basics
- Price Action
When beginning anything new, whether it is a hobby, work or a new project it is vital that we have a passion for what we are doing. Without passion we as humans grow bored quickly, lose interest and become lazy or disheartened. The same can be said for trading.
You will hear many trading coaches talk about treating your trading as a business and not a hobby. I’m not disagreeing with this sentiment but I believe your trading should be a hobby as well as a business. I think it’s essential to enjoy something to excel at it. After all, the things we enjoy are the things that we succeed at.
If you hate flying would you consider being a pilot or if you are afraid of the sea would you skipper a ship? The best traders are mostly unknown to the rest of the world, trading in “secret” with an enjoyment of trading and living the free lifestyle that trading can provide. They are not only interested in making money.
So before embarking on this new career choice, you need to realize that this is a “career” and not an easy one at that. You will be challenged in ways that you never thought possible, you will come to the brink of your emotional and mental capacity and be willing to throw in the towel many times long before you achieve continued success. Of all the things I have done in life this is definitely up there with the hardest and most draining.
Is trading really hard though? No, it is actually really simple but it’s the process of fitting all the pieces of the puzzle together that takes time and hard work and then being able to execute the plan repetitively without mistakes. Not knowing what the picture should look like and not having any corner pieces makes this extraordinarily allusive. If we have the corner pieces and know what we are building towards this will make it achievable. Even once you know how to trade there are still many challenges to overcome such as your emotions and discipline.
Don’t expect to learn all there is to know about trading in a few weeks. It can take traders anywhere from several months to many years before they achieve consistent profits. Even then there is always more to learn and each day there will be opportunities to hone your skills. I believe as new traders if we weren’t continually “sold lemons” and guided from the start we should be able to narrow the time span down to months and not years.
I will be focusing on Technical trading or price action so even if you decide to trade in a different manner you will still gain valuable information from this site. Once we have an understanding of the markets I will be showing my method or recommending strategies that may suite your personality better. Once you have an understanding of what drives the market technically you will also be able to develop your own strategies or make changes to suit your personality.
Setting the Scene
There are two analytical methods that form the foundation for all trading, Fundamental analysis and Technical Analysis.
As with many things there is an on-going argument about which method is best but as you will soon discover there are many different ways to trade the markets. It’s not our job to be a specialist at everything, although it can be helpful to have an understanding of “all things”, this is not necessary and may in fact do more harm than good as it leads to confusion.
I tend to favour technical analysis and the reason for this is that you learn to speak the language of the charts and so you can trade any time-frame and any instrument with a few tweaks here and there.
As you likely already know the trading world is divided up into traders who trade on different levels of the market from the short term scalpers, day-traders, swing and position traders.
Having said this, the only real way to know what sort of trading suites you the most is to open a demo account once you have some basic understanding and a simple plan and just trade. If you find yourself opening multiple trades a day then you may want to consider day trading. If you prefer holding your positions for a few days then swing trading could be for you. It will soon be clear what type of trading style suites your personality and gravitate toward the time-frame that fits. This is a vital part of personal discovery that you find out about yourself with time it will also likely change as you progress as a trader.
Here are some differences between the styles:
- Refers to taking many quick trades that last only a few minutes
- One could start with a very small account ($100)
- Most difficult method of trading (mentally and physically)
- Several trades a day (means - good return possible, more practice, meaningful statistics based on a larger cross section of results)
- No overnight/weekend exposure
- One or two pairs (no open closing windows or tired eyes from too much screen real estate)
- Refers to taking one or so trades per pair / day that last a few hours
- One could start with a small account ($200)
- A few trades a day (means - good return possible, more practice, meaningful statistics based on a larger cross section of results)
- Some overnight exposure generally no weekend exposure though
- Possible to trade a few pairs
- Refers to taking longer term trades that last a few days
- One would need a larger account of say min ($500)
- Less trades but it’s still possible to see very good returns (quality over quantity)
- Overnight and weekend exposure
- Possible to watch a dozen or more pairs
- You could have a full time job and still trade
- By far the easiest method in my opinion (recommended)
- Refers to taking long term trades / investments that last a few weeks or months
- Large account required of say min ($1 000)
- Very few trades with relatively low returns
- Overnight and weekend exposure
- Possible to watch a dozen or more pairs
- You could have a full time job and still trade
My methods will be geared towards any trading personality the trader who has at least 2/3 hours to spend in the market, wants to trade fill time or even a part time trader. I will be offering 3 strategies. Scalping, day trading as well as swing trading 4 hour or daily charts. One can easily use these methods to trade in any manner that suits your lifestyle. At the moment I'm trading 4 hour charts and day trading a few pairs with faster tick charts but the method is identical to scalping except targets and stops vary.
Scalping has the highest return should you master it but it is the hardest method of trading. I often prefer to day trade and only scalp when there are very high probability setups, this helps me from overtrading, getting bored and frustrated. A trader’s worst enemy is himself. Scalping can also provide a means of learning quickly but it tends to teach traders bad habits and is a very stressful way of making money.
A common assumption with scalping is that we trade with a Risk reward ratio(R/R) of less than 1:1 this definitely does not have to be the case, in fact I aim for a R/R of about 1:1.4 and that’s excluding holding onto runners. Later we will look at how this effects our profitability.
Swing trading 4 hour charts is a great way to trade as you only need to check your charts every few hours and you have plenty of time to analyse your charts and not make any rash decisions. With trading longer term charts most traders find that it’s far easier to remain disciplined.
Concerning my instrument of choice I am trading forex and more specifically the EURUSD (when scalping). Now there are many reasons for and against trading forex but to name are a few.
- Forex is not limited to traders who have huge accounts, we will see later that we can start trading this method successfully (after demo trading) with an account of just $100 and all the while never risking more than $1 per trade.
- It is also easy to grow and scale our accounts with flexible lot sizing.
- There are no platform fees or data fees, these can be constant drain especially while learning)
- Low transactional costs (less than $0.08 assuming $1 risk per trade) important factor for scalpers
- A large window of time where we can trade profitably
- Very liquid market
Having said this it is important to watch out for the following
- Spread widening during news
- Scams and broker manipulation
Of course if you decide to trade a different instrument like stocks/futures I will show you how the exact same principles we use in day trading can be used on any chart any time-frame.
So with this in mind let’s scratch the surface of price action which forms part of technical trading.
Price action refers to the movement of price on a chart and the technical analysis of these price movement with methods such as pattern and candlestick analysis.
Price should be viewed as sheet music or a script in a foreign language. You will learn to read it, firstly by being taught the language structure, then by studying and practice reading it.
Why is Price action worth studying? No one can truly claim that they know the reason price behaves the way it does and there are countless theories amongst price action and supply demand traders to explain this but what we can be certain of is that there are times when price is predictable in nature and we can take advantage of this. Another point to note is that price action has not changed over many decades and thus we don't expect it to any time soon.
One only needs to study the chart below to realise that price action has immense power in the markets as you see how it reacts to different aspects of technical analysis. You can also get a sneak preview of what my charts look like should you be interested in using the same tool and templates as I do. A picture says a thousand words.
When it comes to learning about everything forex related. Most trading sites and traders are fixated on indicators, systems and EA’s. I recommend you read about them for interest sake but do not study and spend hours/months trying to find an indicator that would keep you out of a trade or get you into that wining trade etc. I can’t stress this enough! I have spent months trying every possible type of moving average, RSI, ADX you name it all traders have tried them at some stage and unless you can put that temptation of finding the lazy method of buying/selling when an indicator tells you to, you will not progress as a trader. This is what causes people to waste 5 years of their life on constantly losing strategies. No indicator can tell you if a trade has a high probability of success, at least I never did find one. Once you understand how price moves and the key areas it turns you will be amazed at how easy it is to pick out trades with very high probabilities. Price can tell us everything that any indicator ever could and with much more clarity and accuracy but this will take some work and practice. Fortunately the rules and principles are very simple and I sincerely hope you will enjoy learning through this site and that your path is filled with Eureka moments. I find Price action a very satisfying method of trading as you can actually understand and analyse not just guess.
Using price action gives us an advantage as we get in early into a move which is then fuelled by all the late comers, generally those entering with indicators. Here is a search on Google trends of price action vs. indicators.
As you can see Indicators are clearly the more popular choice and possibly this fact plays a big role in the success of traders, or lack of rather.
I’m giving a very simple summary of what you most likely already know but should you be new to this business and wish to do some more research on the basics please have a look at the link below.
I’d recommend having an understanding up to Grade 8 on the Babypips site or at least read up to grade 2 and then I’ll recommend you read through sections as we go through the material.
I will discuss everything that I personally use in the course. Topics such as channels / patterns are covered in Babypips but we will look at them in far greater detail and apply rules that give these aspects meaning and tradability.