Q&A With A First Year Trader

This was taken from a thread I post on at ForexFactory.com:

Q: "Hi, I'm a pretty new trader, about 1years experience. Still looking to hone my skills. I've been around the trading roundabout; from naked charts to fundamental announcements to indicators and systems. Now I'm kinda rebuilding. I've been following this thread for a while now because I take particular interest in the GBP/JPY, and have found that you definitely know what your talking about. Thanks much and keep up the good work. What would be your advice to me to further develop my trading. I currently use multiple time frames and then scalp 1min. with a macd/rsi set up, coupled with some chart patterns. Pretty good so far, but I really would like to reach the level where I can analyze economic conditions, market sentiment, equities and the Dow so as to make better decisions. But then again would that work with my 1min time frames?"

A: "Thanks for the compliment! Always nice to hear!

As to your question: I think we're all different. My main flaw when starting out, was bad money management. I live in NV. I live in Reno now, but lived in Vegas for 11 years. This is the world capital of gambling. I have no problems throwing money around. My main problem was holding on to it. If I lost on a couple trades in a row, I'd double up, as if I was at the blackjack table.

Then after I conquered my bad money management, I then developed another bad habit. I would hold trades too long, either trying to wait for it to get out of the red, or instead of closing out and being happy with 30, 40 or 50 pips, I'd hold trying to get 100-200. I would be up 40 pips and instead of closing out, and taking profit (or moving my stop to break even), I'd hold too long and stop out at a loss, and if I was luck, I'd B/E. I still struggle with this problem. So these are my faults I worked on.

Trading strategy or methodology aside, what would you say are your fundamental faults? What ever you feel they are, correct them! It sounds like scalping the 1M chart is working for you. I can tell you it is not my cup of tea, but it works for you, and that is most important! When you are seriously trading, serious money, the most important thing is to be comfortable. If your head isn't in the right place, YOU WILL FAIL. The main thing is to establish a comfort level. When your comfortable, it is easier to be confident when you pull the trigger (click on buy or sell).

I am not a fan of indicators. I use only one, a MT4 custom indicator I think "Desperate" (John) posted on here a few months ago, and that is the AutoPivotIndicator_ver5. Was that you John? It shows a daily pivot, weekly and a monthly. That's it. Before I was a regular on FXFactory, I'd never heard the term "Naked Chartist." Now I know, I am a "Nudist" when it comes to my charts. I like to look at a bare chart, 1H, and I look for my three favorite patterns. They are the consolidation squeeze, and a tight horizontal range. The 3rd, I'm not even sure what the name is for it, but is when several hours of candles, are stacked up on a support line, or pushing up against a resistance line, and waiting for the collapse, or the explosion upward. Then coming up 4th, are clear trends and watching for trend breaks. I think it took a couple years of full time trading to really get a knack for it.

I think I learn and get better everyday. Forex really takes time. JUST REMEMBER: It doesn't matter what works for me, it is what you feel works best for you. I started trading in my mid 30's. After puberty hit, I was never the best student. I studied Economics and Finance at Chapman University in Southern California. Then in I think 1987, the movie "Wall Street" came out, and about the same time, "Trading Places." So, with a little over a year of College left, I started pumping out resumes to different investment firms. I was offered a job, quit school and went to work, and never looked back. Was I successful? Sometimes yes and sometimes not.

OK..... my point is, I am no fan of studying, books, classes, tutorials, seminars, none of it. I like to learn on my own, by throwing myself into the fire and learning by trial and error. With Forex, that was an expensive education! I spent a lot on paying for trade signals, live trade sessions, and mentoring. Some sucked and were a total waste of money, and others, I am grateful for. It was a lot of experimentation, and learning what was best and most comfortable for me. For you Jermy, it sounds like you are doing well for your first year of trading. If you are comfortable with your style, and you are making pips, you are in the elite 5%, and for a first year trader, I'd say you are in the top 1%! Try not to force anything. If you are able to see the setups on my charts, or the levels I give you, GREAT! That is the whole reason I am posting here. I signed up for this thread because Tatton was making some serious trades, and it really caught my attention, and brought me over to the "Darkside" of trading the GBPJPY. Since he's been gone, I've started posting, because I wanted to keep the traffic flowing through the thread, so it would still have interest when he came back. I was going to give out buy and sell signals, but I will leave that up to Tatton, if and when he comes back. Hope he gets better soon. I found I felt rather helpless when I used signal services, because I learned nothing. Then I was using a service, where a guy named Russ, would do a live room every night where he went over support, resistance, and trendlines. I learned the most from him. He is no longer around, don't know what happened to him.

Can you tell I like to write? Wake up Jermy! Sorry to be putting you to sleep! I'm just trying to instill in you, that you hone your skills that fit you and your temperament. 1M scalps, drive me nuts, but it doesn't mean I'm right! The main thing is that it works for you! It's your money your trading not mine. I'm happy to share what I do, with you. I am glad you appreciate some of it. "

Q: "Thanks to you. And yes it's ok to do the post. My system seems to be working, for that I'm glad, but even though I practice good money management, every now and then I break my own rules and pay dearly.

For instance lost 200 pips at this weeks open (Terribly married 2 trades). And has recover 150 pips up to now. What I don't get though trading 1H timeframe, how can you only go for 50/40pips? R u trading 1:1 risk reward. With my 1M set ups I can afford to run with 20/30/40 pips as I only risk 10:15 pips. And that's what I was hoping to improve. Especially like this week when I sit before the PC and watch the market run for 100s of pips and not be apart of it. Then you look back and really have to ask yourself where were you when all of that was happening. On second thought though. I'm really interested in your style of trading because I know this market changes and I hope I'll have a good enough system, or strategy to survive the changes.

Thanks again"

A: "Yes, I'm trading with Risk/Reward at about 1:1.

Like I told another trader on here, I wait for the move to start before I trade, I don't trade an anticipated move. So, I am always pretty damn sure it will keep going in the direction I based my trade on. Now, every currency pair is different. With the USDCHF or even the EURUSD, I'd be happy with 15-30 pips, the GBPUSD and the USDJPY 25-40. With the GBPJPY, 40-50, but if PA looks good, I'll wait and watch for a carry farther, but never be afraid to take a profit. I try and take trades where my stop loss never even gets close. So I miss the first few pips on a move? As long as I am really confident that the move is happening, I will execute the trade and make money.

With your larger losses, it is all a matter of sticking to your trade plan, and if those were intended to be scalps, you deviated from your trade plan. After a few losses like those, you will keep your stop losses set at 10:15. As for teaching my style of trading, I think I could write a 400 page book, and still not be able to teach it. I think it is a matter of following and watching, as I did with Russ. Finally, one day, I realized I was seeing it on my own, then slowly built up my confidence to seriously trade what I saw on my own. Hope this helps."

Q: "What I don't get though, trading 1H timeframe (chart), how can you only go for 50/40pips?

A: "I wanted to add to the subject a bit. For some reason, I am more comfortable watching PA on a 1H chart. I always enter a trade, where my stop loss is comfortably beyond a major S/R level, trendline, or pivot, without throwing my Risk/Reward off of 1:1. Pips are pips! As long as they are mine!"

Q: "I really would like to reach the level where I can analyze economic conditions, market sentiment, equities and the Dow so as to make better decisions. But then again would that work with my 1min time frames?"

A: "With the style of trading I use, I wait for the move to happen, not anticipate it. News and other events, indices, move the market, I watch for the move to start, then jump on it and go for a ride. I liken it to jumping on a train: Would you rather get on a train that you guess is going the right way, or would you rather get on a train that you know is going the right way? Yes, of course. I'd rather be pretty sure I'm going the right way, rather than just wingin' it!

As far as following news, the Dow, etc. Movement of the currencies, depends largely on economic conditions. With the world economic crisis in full swing, risk aversion/appetite is the norm. Just up until a year ago, if the DOW was up, it was generally good for the USD. Now, If the DOW is up, it drives risk appetite, and drives currency investors to branch out into other currencies. Presently, when the DOW is down, the world uses it as a economic "measuring stick" of things to come for the rest of the world, and drives investors into the USD as a safehaven. That will probably change if the US keeps leveraging itself deeper into massive debt. If and when that time comes, will have to learn to adjust. There is no crystal ball, so that is why it is so important to not over leverage your trades. The best thing you can do is try and keep yourself up to date with the worlds economic news, almost by the minute, while you trade. One very helpful tool is Keeping the news on, so you can listen while you trade. I really like Bloomberg, and that is why I was so happy that I figured out how to add it to my blog. Now I have it on, and it can run in the background while I watch charts. I have it on constantly during my trading sessions.

One important note surrounding news events, which I always remind everyone when I post setups, is to always check the news calendar to see what events are coming out during the trading day. Be aware of the news that could effect the PA of the currency pair you will be trading. Be very aware of the time, and make sure you have stop losses set, and probably tighter than you normally would, just in case the news spikes the price in the direction of your stop. Spikes can be huge, and you want to protect yourself for a spike in the wrong direction.

As for your timeframe, sclaping the 1 minute charts, the only thing you could base your trades on is directly after key news announcements, ie. GDP, or Non Farm Payroll. Otherwise, I think it would be difficult, unless you can get a feel for general market direction, during a trend and the fundamentals driving it.

Thanks for the great questions!"