Forex broker choice – criteria

Forex broker choice – criteria

Another thing you can’t trade without – your forex broker

forex broker choice key words
broker key words

How to choose the right forex broker? What criteria to consider? 
Why is this choice is important? 
Can this make a difference between being long term profitable or not? 

All your forex trades are executed through a forex broker. There are plenty of forex brokers out there and their marketing activities are very visible.

How to choose the right broker for you? Please note that I did not say the “right” broker, but the “right for you”. The choice will depend on your circumstances.

I am not going to recommend any specific forex broker. I am not affiliated with any broker, i.e. I am not making money by recommending a broker and have no intent to do so.

OK, with disclaimers done, let’s get into the criteria…

How to choose the forex broker that will be right for you?

Of course, The Internet is your primary research tool, and you can find everything out there.
My criteria list:

  1. Trustworthy and reliable broker. This is the starting point. You are going to transfer your money there, so make sure this is not a scam, but a known and reliable broker. How to find out? reviews, website, you can check website ranking, opinions on forums, and of course websites that compare brokers, such as myfxbook.com.
  2. Transaction costs, incl. spread, commissions (if applicable) and rollover (swap points). Importance will depend on your trading style. Costs are always an important factor, but if you trade daily bars and your usual take profit is 100 pips, then whether the spread is 1 or 2 pips matters much less vs. if you are scalping for 10 pips gain (in such case 2 pips spread is 20% of your profit). If you do not keep positions overnight, rollover cots do not apply.
  3. Trading platform. This is important, you will spend hours there, so it’d better be user friendly, one that you like and the that supports the tools and order types that you want to use. There is no other way than testing multiple platforms, MT4, cTrader, SAXO, FXCM and others. Is server side trailing stop important for you? Do you want to move stop loss on chart? Do you plan to write trading robots?
  4. Trading conditions. Specifically, availability of microlots which is I believe critical for beginners. Number of markets. If you also want to trade commodities and stock indices, look for a broker with respective CFDs.
  5. Regulation, location, tax implications. Choosing a broker in your home country is for many reasons safer and more convenient. In case of any legal issues, case will be easier. Tax submission may be easier as a broker will prepare tax forms for you.
  6. Customer service. Not a critical thing, but you are likely to have questions and it is nice if a qualified and friendly staff answers them in a timely way.
  7. Market Maker vs. STP/ECN. Broker business model, this is a topic for an article itself, search for this and find out.
There is more, but this is my top criteria. Add common sense 🙂 
And of course, importance of some of the points will vary for different people and will depend on how much money they want to put on the broker account (and there is no reason to put an amount of money that is very significant for you until you are consistently profitable on demo and then using microlots with risk per trade of $25 or alike).
And, if you are not happy with your choice, you can always change a broker.
Never put all your money in one broker account.
Money you deposit to a broker account should be the money you can afford to lose.  Of course, if you trade in a responsible way (stop loss, right position size, best setups only) and if you do the right research and are not very unlucky (broker bankrupcy), then you should not lose all money, but, again, the money you fund your account with, should be your trading “risk capital”, never the money you need for living, and never borrowed money. Use for trading only your “speculation capital”, to be safe.

“Rebates” or “cashback” or “bonus”
Many forex brokers have affiliate programs where they pay some commission to “referring brokers” or “introducing brokers”. How it works? A referring broker will get some commission, usually around 1 pip of a spread from each of your trade, if you, as a new customer, are referred to by this referring broker. This is a marketing scheme by brokers.

Now, some of the “referring brokers” will give you back some of their income. This may somewhat reduce your trading costs.

While I prefer a broker that offers upfront low costs, you may want to choose to participate in some kind of cashback scheme, as also some of the referring brokers will provide some additional benefits such as training, some support, etc.

Some brokers, usually market makers, also offer “bonuses”. They assume, quite rightly from statistical perspective, that new traders will lose money, and, with market maker model, clients’ loss is often broker’s profit, which explains the scheme. You might still want to use it, but I would not use it as a primary broker choice.

In short, choose wisely, primarily based on broker reputation, regulation, transaction costs and platform. And, consider your trading style (it will impact transaction costs and what kind of markets and order types you need access to). 

End-of-Day trading

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.


What is EOD trading? 

By EOD trading I mean any approach where you:
– do not need to look at the markets or perform any trading tasks during the work day
– you trade once every 24 hours, in the evening of your timezone, “after hours”

Why trade EOD?

– you can trade and still have a full-time job and some life-balance
– trading setups are believed to be usually stronger and more reliable on higher timeframes
– trading costs are smaller (if your take profit is 100 pips, the 2 pip spread matters less vs. if your take profit was 10 pips)
– there is less noise on higher timeframes (which you trade if you trade EOD; by “higher” I mean 1 hour and above – and with my system you do not need to look at market every hour although your setup is on H1)
– there is no time pressure, you do not need to take decision within 1 minute in stress, which is counter-productive

How to trade EOD?

Simplest answer is: trade the daily timeframe. That is, one day is one candle / bar on your chart. You look at the chart every day, i.e. every bar. You trade systems (whether this is price action setups or even indicators or divergences or anything else) on a Daily timeframe.

Risk level is not a problem (it used to be in the past). Now with most brokers offering micro accounts, even if your stop loss distance is a full daily bar range (e.g. 100 pips or even two times daily ATR), you can still limit you loss to just $10 if you trade 0.01 lot size.

Having fewer trading opportunities is a bit of a problem. We should trade best setups only, this is key to high quality. And , whatever system you trade, best setups may present themselves only every 20 or 100 bars… days in this case. Even looking at many currency pairs (beware correlation), there may be just a few setups per month.

A solution is the SDH1 system I present here. I use H1 chart (so I have trading opportunities as many as I would have on a H1 chart), but I use pending limit orders (enter at my price level) and set & forget SL and TP orders (get me out at a loss or a profit if a certain level is reached) so that I do NOT need to look at the market intra-day.  This approach can be applied to other systems, too.

Alternatively, if time and logistics allows, you can look at the market around lunchtime, or also in the morning. With this you could also trade H8 or H4 bars and setups. But for me, what is best, is a focused time to analyze the market in the evening, with no distractions and no time pressure, just a relaxed execution of my trading system.

Summary

Trade End-of-Day if you have a job and want to spend 1-2 hours per day on trading. Trade higher timeframes, use Daily bars or Hourly with pending orders and set & forget trade management method. 

Trading journal

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

trading journal
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.

What is a Trading Journal?

It can have many forms, but as a minimum, I believe you should record

  • each trade, give it a number
  • market, e.g. EURUSD
  • reason why you took this trade, this can be just a system name or a more (e.g. what price action, if there was a key level, what indicators showed, what was the trend, higher timeframe trend, etc.
  • chart screenshot at a moment you placed an order, i.e. how the market looked like when you decided to trade. You can also add a higher timeframe chart, too. This is a chart you will look later on to asses if this was a high quality trade, in line with your system, or not
  • chart screenshot at a moment the position was opened, i.e. order was filled. Of course, if you opened at market, this is the same chart as “when you placed an order”. But if I used limit or stop order to enter, it will be different.
  • chart screenshot at a momemt the position was closed, either at loss or profit, OR, if you deleted the order before it was filled.
  • learning, i.e. your comment on what you learned from this trade, e.g. “do not trade against ther higher timeframe trend”, etc.
  • assessment, i.e. was it a high quality trade or not. Based on your system / strategy / method. Your trading system tells you if and when to trade. Here you assess if you traded in line with the system or not. Also, did you manage and close the trade in line with your strategy (e.g. set & forget, or take profit half the position and trail the rest, etc.)
  • trade outcome in your account currency, i.e. the loss or gain.

The above is minimum, but there is more you optionally can do

  • charts showing how you managed the position, e.g. moved the stop in the direction of the trade (you never move it against the trade)
  • trade outcome in pips
  • date of open and close, day of the week
  • any additional criteria to mark in the journal, such as trend, level (yes/no), price action (what kind of, e.g. pin, engulfing, outside bar, inside bar, etc.)
  • position size and position sizing method used (e.g. equal dollar risk per trade)
  • anything else you can find useful (but do not overdo becasue then there is a risk you will not have discipline to maintain all data, I suggest you start small)

How to practically manage it?

Here is how I do this.

  • My trading journal is a spreadsheet, in openoffice format, created and updated using LibreOffice 4.1
  • To take screenshots I use GadWin printscreen tool. Here is the link to the tools I use.
  • The file resides on box.net and I use synchronizer to have the always up to date file on two different PCs that  I use.
  • I create an entry for each trade, and fill in the data.

 

How to use your Trading Journal?

Ok, one you have some trading history, here come the KEY thing, i.e. how to use it.

  • Every 20-40 trades I do the full review of the journal.
  • I look at each trade and assess its quality, and look at the chart to see what happened later.
  • I look for common patterns of errors or things I can improve, such as: shall I place stops a bit wider, shall I take profits earlier or later, shall I skip some kind of setups, etc.

The learning is priceless.

And all of this you can do for free if you trade the demo account, or risking very little money if you use micro live account with 0.01 lot size.

Any other documentation to maintain?

Yes, on top of the trading journal, I have:

  • system description, for each system I trade, a 1-2 pages description of the entry, closing, etc. I always create this myself, even if based on some other material
  • setups catalogue, a file with 20-100 setup examples, high quality trades from the past charts, ones that paid and ones that did not, but showcasing the setups of the system
  • equity chart, monthly equity and balance of each of my live trading accounts. And I chart it and calcualte monthly gain or loss. I also see this in myfxbook.com tool, by account, but I like to have my own spreadsheet with top level data.

That’s it for now, and, if you take just one thing out of this post it is this: maintain a journal with all your trades, incl. why you opened it, how it was closed and learning. 

Happy to discuss & learn from you.

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.)

 

Entry setup

Supply or demand zone is the setup I want to see on the chart to consider placing orders.
I draw SD zones on H1 chart. I need a ‘fresh’ zone, i.e. level not yet tested (I will clarify in future posts).
How I draw the zones: 
For Supply zone, I use the highest high of the consolidation bars and the open of the last bullish candle, typically the one that was engulfed by a bearish candle on a way down.
For Demand zone, the low of the zone is the lowest low of the consolidation and the zone high is the open of the engulfed bearish candle.  Please refer to free materials referenced in the credits section of part 1 for more.
I use discretion in the way I draw zones. Sometimes I will use high or low instead of the open of engulfed candle. This will become clear as I will share more charts.
I mark the zone if there was a brief consolidation and then a fast and significant move in one direction.

Entry method and stop loss placement

I use limit orders to enter. I place orders in the evening, before midnight in CET timezone.

If I trade a supply zone, I place a sell limit order just below the low of the supply zone. “just below” means a couple of pips, it is discretionary. My stop loss is a few pips above the high of the zone.

If I trade a demand zone, I place a buy limit order just above the high of the demand zone. My stop loss is a few pips below the low of the zone.

Trade management and take profit placement

I use set & forget trade management. There is no ‘active’ trade management. Once the trade is triggered (i.e. my order is filled), I do not touch the trade. I will be closed either at SL or TP level.

TP level is roughly at 2 times the SL distance, e.g. if SL is 20 pips, then the TP will be 40 pips.  [ I know many people believe this is not logical because the market does not ‘know’ what is my R and TP level should be in a logical place based on market structure not my SL, but this method works for me and usually TP level derived like this happens to be in a quite a logical place]  [I know many believe we should ‘let the profits run’ and trail the stop, but this method works for me because I have the result fast, it is SIMPLE, and if the market gives me 2R, I take it ]

Deleting unfilled orders. If the market goes really far away from my limit entry and there is another level that justifies placing a trade (a new setup), then I will delete unfilled order (e.g. a buy limit at a demand zone below) and place a new order (e.g. a buy limit at a new demand zone above the previously used).

Other considerations and conditions

News. I ignore the news. News have no impact on my trading decisions. I read the news because I am curious, but I do not use news for decisions.  [I know many advise to refrain from trading before high impact news. It seems that for me and for this method, it is OK to have orders in place even before big news. Often the news will trigger the move that will fill our pending order ]

Higher timeframes. I look at D1 bars and D1 supply and demand zones (I mark them red and green on charts, while the H1 zones I mark grey). I  do not trade long just below daily supply. I do not trade short just above daily demand.  I like trading long right above daily demand. I like trading short right below daily supply (but I still trade H1 levels).

Confluence. Things sometimes I look at include: fibo retracement, support / resistance, previous levels. I trade fresh levels only (i.e. not tested, nothing on the right on the chart after the zone). I also look at trends (but this method is essentially counter trend at a lower timeframe, however I will avoid trades that are evidently counter-trend on a higher timeframe).

Other criteria. My planned TP level at 2R (2 times SL distance from entry) should not be beyond next demand/supply or S/R, e.g. if I go long, and my planned TP level is at or above a supply level, I do not take the trade.  In other words, I do not want my trade to need to break through a “trouble area” such as another SD or S/R level.

Best setups only. The essence of high quality trading. I intend to trade best setups only. More on that soon, with examples of best and not best setups.

Weekend. SDH1 positions usually get closed, at SL or TP, within 1 or 2 days. But what if it is Friday and I have the trade still open? I have no set rule here. If it is at almost SL, I may close it manually, because with weekend spread widening, chances are it will anyway be stopped out. And I do not want to risk a gap opening against my position. If it is very close to a TP, I can also close it and move SL to break even or to 1R TP level. If it is around 1R, I move SL to BE or close.

Time stop. In general you can consider using a time stop for the setup. In SD H1 system, the price “should” do what we expect within a day or two.  If instead, the price is consolidating between your SL and TP… looks like our setup is not valid anymore, so it is a good idea to be disciplined to close it manually vs. hoping or gambling it would reach a TP.  Of course, sometimes it will happen that we closed a position at a small loss while, had we waited, it would be a winner.

Exotic currency pairs. For H1 system the spread is a significant cost. I stick to top 10 majors. For D1 systems, where spread is less important , you can look for more trading opportunities among pairs like CADCHF or NOK/SEK, but spreads will be higher and remember often the pairs are correlated.

Correlated pairs. This is a risk management issue in fact. USDJPY and EURJPY are highly positively correlated. There are many other combinations. If you open a position on both pairs, should it reach SL, likely both will hit SL, so you are doubling your risk.  My reco: avoid correlated pairs, trade just one where the setup looks to be higher quality.  Alternatively, you can trade half the position on both pairs (because if you choose one, often you “would have” a winner on the one you did not trade while no fill or even a loss on the one you traded… again, cost of doing business… better accept than get frustrated… and always take best setups only.

High quality trade. Take high quality trades only. Trades where the trading plan criteria are really met. With the right position size, SL placement, TP placement. After each trade, do the quality assessment. This is independent from a monetary outcome. You can have a poor quality winning trade and high quality losing trade. Whether it is a loss or win, it is almost “random”, whether at this instance of our trading edge it paid or not. Whether it is a quality trade, is a reflection of our decisions.  So, review each trade in the journal and grade its quality. Review, especially poor quality ones and think how to eliminate them (i.e. do not over trade).

Summary

This describes a complete trading system I use: entry, setup, risk management rules, stop placement and position sizing, and other considerations.

In the future posts I will cover some other important factors such as trading journal, tools used, logistics, effective mindset and beliefs, etc. For complete understanding of the method please also refer to Sam Seiden video referred to in part 1.

Happy to take your questions or comments. Feel free to share with your friends.

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.

Credits

Supply & Demand trading system based on hourly timeframe
Supply & Demand trading system based on hourly timeframe

I developed this system based on the following resources, and here I’d like to give credit and say thank you to people who shared their knowledge and materials for free:

Sam Seiden from Online Trading Academy. He is featured on fx street education here.
His very good webinar on Supply and Demand here.

Kenneth Lee member of forex factory.
His thread with free supply & demand ebook with tens of charts examples (exactly how trading courses and system descriptions should be), here on his thread.

Alfonso Moreno member of forex factory.
His thread on supply & demand set & forget trading, which was an inspiration for my method for trading end-of-day as I have a full time job, can be found here.

PhAnTi member of forex factory.
His thread and ebook is here.

There are many others who directly or indirectly contributed to my trading system development, including Mike and others from james16 thread and others.  Thank you.

Trading System

First, let me clarify what I mean by a trading system. I could also call it a trading method, or approach, or strategy, or “my way”.  It is not a mechanical algorithmic system. It is a system (method) that requires discretion and flexibility.  I will continue calling it a “system”.

The flexibility is primarily with an assessment whether or not to trade the setup.
The hard-coded non-discretionary elements of my system include initial stop loss placement, position sizing method, entry method (order type), entry setup (what triggers the order entry and order fill).

System foundation

I am using the Supply & Demand zones. These are places where there was a supply vs. demand imbalance, which we see on chart by the price moving away fast and far from the level, after a brief consolidation.  (I will not repeat others who explained it very well, please refer to links in the credits section)

I trade after hours, end-of-day only. I spend 1-2 hours on forex between 20.00 and 23.00 CET (Central European Time, i.e. 6 hours later than U.S. EST, a NY close at 6 pm local time is my midnight).

I identify supply and demand zones on D1 chart and on H1 chart. Please refer to Supply & Demand materials to learn more on how to do this. I plan to provide chart examples, too.

I trade forex majors. About top 10 pairs.

Risk management principles. I always set a hard stop loss order at a broker. Stop loss distance is driven by the setup chart structure (more on that later).  Position size is driven by how much money I am willing to lose on this trade (about 1% of my trading account). I never move the stop loss against my position. I never average, i.e. never add to a losing trade. I never hedge my positions.  [I am not saying these things are bad. I know people claim to be successful using them. But I choose not to.]

This completes the foundation part.

In my next post I will cover the trade setup, entry criteria and entry method (order type) and exit criteria.

To be upfront I will share a very short summary already now: my entry method is a limit order just above the demand zone on H1 (so entry setup is price touching the demand zone), stop loss is just below the other edge of the zone, and take profit is around two times stop distance (2R). [reverse for short, i.e. entry sell limit just before the zone’s low, SL above the zone high]

EDIT: here is a link to part 2.

Top Trading Rules

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.


  • Forex trading is a business
    • treat it like a business (read the first post of james16 chart thread on forex factory)
    • do the research (e.g. backtesting, learning, demo trading, microlots trading)
    • have realistic expectations
    • it can be the ‘perfect business’
    • have a ‘business plan’, i.e. a trading plan that describes your system, organization, risk rules, record keeping rules, etc.
    • manage the costs such as books (recommended), training sessions, paid indicators or systems (rather not recommended), and transaction costs – spread and rollovers (costs depend on your broker and how many trades your take)
    • set objectives; ‘make money’ is considered not a good one. Better are ‘learn to trade a system that has an edge’, ‘protect the capital and never lose more than thirty percent of it’, then ‘have a net profit every quarter’.
  • Manage your risk
    • use a stop loss order, at a broker, always. Place a stop based on the market structure (e.g. pattern high/low, volatility, key level) and not based on your risk acceptance (use smaller position size to have the stop in the right place and lose no more than acceptable)  [ I know many people believe otherwise. I respect their point of view and I keep my point of view ]
    • trade the right position size, so that if your stop is hit, the loss is acceptable
    • never lose more money than you are comfortable with losing on a single trade (this can be $50 or hundred times more, it is individual thing, clearly depending on the size of your trading capital (not necessarily the account) and your level (surely a beginner should risk little, even if wealthy)
    • risk per trade so little that even in case of 20 consecutive losing trades, you will still be in the business
    • have an emergency plans in case risks other than stop loss getting hit will materialize
      • power down, computer down, broker bankruptcy, financial system meltdown, bank deposits confiscation
    • for trading use the ‘risk capital’ only, i.e. the money you can afford to lose. Never trade with the money you need for a living or borrowed
    • use a trustworthy broker, preferably in your home country or in a country that is considered rather ‘safe’ vs. exotic islands, pay your taxes
  • Keep the records
    • Have a trading journal, record each trade: market, reason for opening it (e.g. this signal from that system because this and that), chart screenshot on opening the trade, chart screenshot on close (can also add on entry and interim ones if you actively managed the position), trade result in $, trade assessment (high/mid/low quality), your learning from this trade. (high quality trade can be a losing trade if you followed the system)
    • Review your journal every 20 trades, look for repeatable patterns of errors or opportunities. Are your stops to narrow? Are you trading ONLY IF there is a signal that your system tells you to trade? Are you following your plan on how to close the trade? or are you closing the winning trades too soon? are your limit orders getting not filled? Apply the learnings. Repeat.
    • Chart your equity curve, i.e. simply record your account equity every month or week and chart it in a spreadsheet. See its slope.
  • Have a full commitment to become a trader
    • discipline is needed to follow your trading plan
    • perseverance is needed
  • Have a right mindset, also known as trading psychology
    • take full accountability for your results (it is YOUR decisions that create the net profit or loss, not the broker/market/big banks/FED chair, etc.)
    • trust your trading system (after you backtested it and it proves it has an edge)
    • trust in your ability to become a profitable trader (if you believe you will not make it, chances are that you are right)
    • really know your trading system very well before you start trading, so that you know what you are doing and feel comfortable
    • understand this journey takes a lot of time, do not push for a quick success, it usually results in over-trading, taking poor quality trades, and losses
    • be OK with losses, accept that losing trades are a normal cost of doing business and trade right position size and use stops so that losses are always small and acceptable
    • have a focus, determination and passion for the markets – like the trading
  • Accept that time and effort is needed to become a profitable trader
    • 10,000 hours many people believe is needed of practice of anything to become a master. I believe this applies to forex trading, too.
    • keep learning and at some point try to help others, as teaching other helps you internalize the material as well (one of the reasons why I run this blog 🙂
[more will be added]
I believe these are universal principles. I think they are timeless and I think traders, especially leveraged markets traders, should follow these rules to be long term consistently profitable. I focus on ‘long term and consistently profitable’, i.e. profitable over many years, with each month or quarter net positive result.
Of course, you can violate the rules above and maybe double your account in a week. Anyone can, but the method used for this (high leverage, large position, no stop loss), sooner or later, I believe, leads to a margin call and a LOSS of your account or more.
For a long term, sustainable, consistently profitable forex trading, this is what I believe we need to follow. At least that’s my learning. I am happy to discuss.
Feel free to comment if you disagree or believe I missed something important. 
I will be happy to add.

Digital Life

Digital Life

As I am creating a “digital life”:-) of this blog…

…I created facebook and google+ pages for it

http://facebook.com/hqforextrading
https://plus.google.com/+Hqforextradingcom/

so now you can also Like me or Plus me.

I wonder if it helps bring in readers… or quality content will.

I also created a trade journal on forex factory forum

http://www.forexfactory.com/showthread.php?t=464979
This is where I plan to post some trade setups.

12-FEB-2014 EDIT:

I also created a Twitter account for High Quality Forex Trading.

https://twitter.com/HQForexTrading

I encourage you to follow me.

22 FEB 2014 EDIT:

I added a pinterest account
http://www.pinterest.com/hqforextrading/

I created a prezi about High Quality forex trading
View presentation

Your trading system

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.

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