Getting an Edge with Forex Trading
Few markets can lure a trader in like the Foreign Exchange market can.
Currencies trade around the clock, are highly liquid and can be traded
on extremely high leverage. A $10,000 account can see you trading a $1
million position on the Australian Dollar, so fortunes can be made and
lost in as little as fifteen minutes. No wonder so many traders are
attracted to currencies – they offer everything we could ever ask for.
I remember my first FX trade. I had just opened my account that day, and I was eager to place my first trade. I remember sitting down and putting on a small trade in the evening, placing my stop loss order, then going away to eat dinner. I came back half an hour later to find a 50% return on my investment. This was certainly a lot more exciting than trading shares!
However, one of the traps with FX trading is that we can find ourselves getting “too close” to the market. Most FX brokers will offer you free live FX data, ranging from weekly charts down to tick by tick charts, enabling you to see every movement up and down in the market. This gives us an excuse to watch the market more often, as opposed to a share trader, who can “switch off” once the stock exchange closes for the day.
The closer you get to a market, the more trades you are likely to take. If you are watching a one minute bar chart, you will see patterns forming on the one minute bar chart. If you are watching a daily chart, you will see similar patterns forming on the daily chart. This can easily lead to overtrading.
The main difference between the various trading timeframes is the amount of time you have in which to make a decision. On the one minute bar chart, you have to make your decisions instantly. On the daily bar chart, you have a much longer period of time in which to assess the trade, calculate your risk, and prepare your orders.
Trading on any of these timeframes is acceptable, but it all comes back to the “chequebook indicator” David Bowden always refers to. If it isn’t making you money, you need to consider changing.
WD Gann suggests that if you are struggling with your trades, try increasing the amount of time between your decisions. For example, if you are a day trader having trouble on one minute charts, try a fifteen minute chart, or an hourly chart.
I remember my first FX trade. I had just opened my account that day, and I was eager to place my first trade. I remember sitting down and putting on a small trade in the evening, placing my stop loss order, then going away to eat dinner. I came back half an hour later to find a 50% return on my investment. This was certainly a lot more exciting than trading shares!
However, one of the traps with FX trading is that we can find ourselves getting “too close” to the market. Most FX brokers will offer you free live FX data, ranging from weekly charts down to tick by tick charts, enabling you to see every movement up and down in the market. This gives us an excuse to watch the market more often, as opposed to a share trader, who can “switch off” once the stock exchange closes for the day.
The closer you get to a market, the more trades you are likely to take. If you are watching a one minute bar chart, you will see patterns forming on the one minute bar chart. If you are watching a daily chart, you will see similar patterns forming on the daily chart. This can easily lead to overtrading.
The main difference between the various trading timeframes is the amount of time you have in which to make a decision. On the one minute bar chart, you have to make your decisions instantly. On the daily bar chart, you have a much longer period of time in which to assess the trade, calculate your risk, and prepare your orders.
Trading on any of these timeframes is acceptable, but it all comes back to the “chequebook indicator” David Bowden always refers to. If it isn’t making you money, you need to consider changing.
WD Gann suggests that if you are struggling with your trades, try increasing the amount of time between your decisions. For example, if you are a day trader having trouble on one minute charts, try a fifteen minute chart, or an hourly chart.
