The key to any great trading plan is breaking down the market into digestible portions and then tackling them one at a time using what technical analysis tells us about these time periods based upon historical proof. The concept could seem elementary at first glance, like how you teach a child to look at the individual letters first, then locate common letter combinations together, then slowly sound out the word when they begin to read, but at its core, the following outline could help you break nine months of trading potential down into individual trading opportunities that you could start acting on today.
The Three Phases of the Trading Year
I use three phases when looking at the data that will eventually outline the foundation of my yearly trading plan. The important part of my process is to identify market patterns based upon the time frames that I use most often and then break down the year in those logical chunks. For swing traders like myself, you might have three or four phases based on the trends you see in the historical data.
Phase I is the first four months of the year including January through April. Historically, these months tend to see more aggressively trending markets as the year starts to build up momentum.
Phase I Strategy Tips: I use counter trendline break strategies during this time of the year. Trendline breaks occur when the currency prices move to not only touch the trendline, but bust through the trendline to create the new direction. I find that these strategies work best because they could allow traders to strategically enter the market based upon major trend shifts where new trading opportunities could develop.
Phase II is the second four months of the year containing market movements between May and August. Based on past market data, these months tend to see less aggressive trends and more consolidation movements where the market moves in choppy waves that mainly move the market sideways.
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During this phase, we are reminded that Forex trading can be a game of anticipation. We anticipate the next move and are proactive in capturing the pip potential from it. We cannot be reactive where our risk and reward suffers and our equity management is thrown off by rash trading decisions.
Phase II Strategy Tips: Although it may not be as easy or clear to identify the market’s next move during this rather uncertain time in the markets (unlike what the Phase I markets tend to provide), this is when the educated traders tend to turn to the consolidation breakout trading strategies. Basically, traders watch the support and resistance lines during this time frame. During Phase II, the range between these two levels typically stays small so it is wise to look for clear breaks in these levels and the market’s history of past resistance becoming future market support and vice versa.
Phase III is the last four months of the year starting with September and ending in December. Again, based upon historical data, these months have proven to result in aggressively trending markets similar to the power that the market shows during the first four months of the trading year.
Phase III Strategy Tips: This phase lends itself to Fibonnaci sequence strategies. The Fibonacci sequence is a trading tool that could help identify market wave patterns that allow traders to buy lows and sell highs and vice versa. Fibonacci numbers are usually used to calculate support and resistance points. For example, Fibonacci retracements expect that, during a trend, prices will move against the trend (retrace) back to a level identified by the Fibonacci numbers. Then the trend is expected to continue in the original direction.
Other Trading Plan Insights
Before I set you loose, there is one last thing that should be said. You can’t always avoid a run through the gauntlet. You have to go through some of the slower, smaller movements every month. Each month and each phase will indeed experience some slower periods, but you have to make sure that you don’t miss seeing the forest because you are so focused in on the trees.
Remember that historical data and technical analysis are designed to show you the larger movements and help you trade using the bigger picture in mind. For example, I could have an A-B swing that moves quickly and I make my pips in a matter of days. Other times, we see sideways movements that cause a similar A-B swing that lasts weeks and even months. The key is to have confidence in the movement that you identified and the courage to stick with it.
As the saying goes, plan your trade and trade your plan. Do not stray from this because you’re encountering the normal ebb and flow of the currency markets that we all know exist. Be the easy-going trader who lays back and watches the market work toward their prediction and fulfill their trade. Do not be the fidgety, anxious trader that jumps out of the trade too early only to see that they were right all along.
Every day is a new trading day. With your mind set on bigger and better wins each day, you’ve already won half of the trading battle. I believe the only thing that stands between you and your dream is the will to try and the belief that it is actually possible.
To learn more about trading plans and upcoming trading forecasts, RSVP for an upcoming webinar: http://goo.gl/mYSnxE.