I’ve been training myself at a brokerage firm for 6 weeks so far. Actually, it was more a “testing period” than a training course. In all this time, I only had to follow two rules:

A. Fixed profit/loss targets: GBPUSD 55 pips, EURJPY 60 pips, EURUSD 45 pips. I just set stops and take profit orders and wait. I am not allowed to close a trade before it gets to the stop or the take profit level.

B. 3 minute rule: When I first open up the platform, I have 3 minutes to open a trade on each of the three pairs I’m trading. After I close one trade, I have 3 minutes to take another one on the same pair.

Why these rules?

Well, they haven’t told us explicitly, but I figured out what the reasons are.

A. Having fixed targets makes you get rid of the two killer-emotions: fear and greed.

A fixed stop eliminates the fear of losing a trade. Many noobs close out their trades in fear when the trade is 5 or 10 pips in loss. After they do that, most of the time the trade returns in favour of their position and then they get frustrated. They’ve closed too early, without giving a chance to that trade. This also eliminates greed. Many times, noobs don’t even set a stop loss order or widen it as the trade is turning into a loser, thinking it will go back in profit. I did that in the past, being driven by my emotions, sometimes even closing trades at -120 pips. This rule forces you to cut losses short and at the same time to give space to your trades.

B. The 3 minute rule eliminates the fear to jump into new opportunities in the market. You’re no longer afraid to enter into a position. You are always prepared, no matter what the market is doing. You will also learn to forecast market movements all day with pretty good accuracy in a few months. Screentime is very impotant and that’s your greatest teacher. As a friend said: “You have to be in it to win it”. Meaning that if you want to make profits, you have to take the risks, you can’t win anything if you don’t take the opportunities that the market has to offer. Many times in the past, I thought “I should go short here, at this resistance level”, but I couldn’t pull the trigger. In 30 minutes, price was already over 50 pips lower and I was cursing myself for not entering the trade.

The truth is that emotional control is 90% of your success as a trader. If you don’t learn self-control, you will never make it. You will just provide money to those who do…

Tips and tricks that make the difference

A. Trend analysis

Trend analysis is one of the most important parts of technical analysis. The more able you are to gauge the trend and market sentiment, the more you will be able to collect a big chunk of pips each day.

An uptrending or bullish market is a market that makes higher highs and higher lows:

Uptrend

A downtrend is an “upside-down uptrend”, meaning the market is making lower highs and lower lows.

Identifying a trend

As a short-term trader I always have to be alert, know what the current trend is and watch out for trend reversals. I’m only interested in short-term H1 (1 hour) trends. An H1 uptrend can be just a correction in an H4 chart, but that doesn’t matter for me, since trading based on the H1 chart allows me to meet my profit targets easily. Such short-term trends can change dramatically, especially on important news reports. That’s why you need to learn how to become a market chameleon and adapt fast to changes in the market.

Downtrend changing into an uptrend

Above is a picture of what a trend reversal usually looks like in a downtrend. The lower lows in a downtrend act as resistance levels as price goes further down. When the price actually breaks through one of those lows, then that broken low becomes a support level and a new trend (or possibly just a bigger correction) is starting. That’s our signal to stop shorting the market and buy at support. Also, reversals tend to happen at 61.8 or 76.4% Fibonacci levels of a bigger wave that the trend is part of. 76.4% Fib is an overbought signal in a downtrend or oversold signal in an uptrend.

You can also plot an 8 hour and 21 hour EMA (exponential moving average) on your chart. These will signal a trend reversal when they cross. When the 8 hour EMA crosses the 21 hour EMA from above, a downtrend is begining. When it’s crossing the 21 hour EMA from below, an uptrend is begining.

Learning how to identify trends and how to use support and resistance levels is the key to Forex. I’m starting to dump Fibonacci and pivoit points, because I find them to be much less reliable than support/resistance levels that I draw myself on the chart. Anyway, if you do want to use some tool, I suggest dumping pivots and sticking to Fibonacci. Pivot points are calculated using daily highs/open/close data and that can be different for different brokers (a daily bar can have dramatically different open and close prices).

Cheers!

General rules

1. Before thinking about putting on any trade, look to see if there is enough profit margin and a reasonable stop loss. If not, stand aside!

Emotional plan

1.If I see a good trade opportunity with a good profit margin, take it (eliminate fear)!
2.If I lose a trade, don’t get angry and don’t make revenge trades (eliminate anger)! Prepare for the next good opportunity!
3.Do not take trades just for the sake of trading!
4.Cut your losses short and let your profits run!
5.Always stick to the rules!

Trade plan

A. Breakout trades

Put a buy/sell stop above/below resistance/support with stop below/above resistance/support if:

1.Price has already touched the level at least twice recently or price has touched the level less than 10 hours ago.
2.Volatility is rising near the level (strong momentum).

Only take a breakout of a level a single time in a day span.

B. Classic S/R trades

1.Put a limit order for the strongest S/R zones!
2.For weaker S/R levels, wait for a confirmation on the M5 chart, before entering a trade!
3.Do not trade used and abused levels!
4.Do not fade the same level twice in a single day!

Today’s trades:

- buy EURUSD at 1.3002 (resistance was at 1.3000). I thought it was going to be a breakout, but it just retraced when it touched 1.3003. Took my 26 pip stop loss. Mistake made: momentum was weak, so I should have went short on this one. Also, I saw there was bad news for the EURO, but I just didn’t factor that in my decision.

- buy EURUSD at 1.3004 (resistance was at 1.3000). Price got blocked again, so I lost another 26 pips. I guess it’s just not my lucky day.

- sell EURUSD at 1.2983, took my stop loss at 1.3006 (23 pips). Disastruous trade. I should have had a bigger stop loss when I bought in at 1.3004 and I need more patience. I just can’t control my emotions yet.

- sell GBPUSD at 1.4830, took my 20 pip stop loss. Price just made a spike and killed me.

- buy EURUSD at 1.3003, went towards my goal for 36 pips then reversed and took my stop loss. Lost another 13 pips.

Today’s summary: -108pips. Things to watch out for next time: price action & momentum, fundamentals, emotion control, stop loss levels. I did not stand by my rule: after 3 consecutive losses, take the day off. Emotions beat me again. I overtraded and the market just laughed at my face. I’m psychologically busted for today.

Hope your day was better.

P.S. : I have learned something today though, and that is that I need to use a 40 pip stop loss on EURUSD when I trade breakouts. If I would have done than and bought at 1.3000 with a 40 pip stop loss, then I would only have made 2 EURUSD trades today… The first would have been a loser, but the second one would have been a winner, but just for about 50 pips. The thing is, I should have never traded the euro today, because with a 40 pip stop loss and a 70 pip take profit (we have a resistance at 1.3070), my risk/reward ratio would be 1:1.75. And as a beginner, I should use at least 1:2. Well, I hope I won’t make the same mistakes next time.

Cheers!