Here’s another great post from MTI Client Julian Axon!
A major element in our trading education is focussed on having a proven, repeatable strategy that we can apply to every trade we enter. The importance of this is consistently stressed by our MTI founder and CEO, Jared Martinez — The FX Chief™. We also hear this from the expert traders we watch every day in the webinars we attend.
What is a trading style and how do you find yours?
The significance of a sturdy trading plan and strict adherence to it cannot be overemphasized. As in many facets of life, if we want to be successful we have to have a goal and a strong plan that will support our activities to achieve that goal. If you watch the Chief frequently, as I have done as part of the Chief’s Trading Club, you will recognize how often he stresses that success comes from having a trading plan that provides you with a number of steps that you will follow when entering any trade.
Before we finalize that plan, we should fully understand what type of trader we want to be. Again, our education will help us decide that according to our individual personalities.
Do we want to be a scalper? In and out of a trade within just a few hours or even minutes. This type of trading will suit the person looking for quick results who does not want to sit in front of the charts for days, monitoring the progress of their trades. But beware, scalping is not a style where you will make hundreds of pips in one trade and you should not attempt to make hundreds of pips using this trading style. 40 -70 pips in a couple of hours would be a good target to set yourself as a scalper in the Forex market.
Do we want to be a day trader where we get into a trade with the goal of being out of it within the same day, or at latest the next day? This trader will likely have time on his/her side and be able to spend time through the day monitoring charts to be prepared to take any action required, (such as exit ahead of target) should the market move against the intended trade taken.
People with a more patient disposition may well decide they want to be a position trader where they take a trade and are prepared to wait for the trade to go through its many swings until it reaches its target, perhaps days or even weeks later. Position traders work with the bigger picture, the larger time frames. We, as MTI students, have access to probably some of the best teachers of trading the larger time frames. Take every opportunity you can to attend webinars hosted by Josh Martinez (Pathfinder) or Jose Tormos (FX MVP). They always start by analyzing the larger time frames — looking for market direction and plotting the boundaries of support, resistance, and the pivot points (AKA the price levels where the market visits frequently and often reverses direction). Josh will always ask his students this question, “Do you want to trade all the way to the larger target at support or resistance, or do you want to tackle the move in smaller bites?” The position trader will enter the trade with the bigger target in sight and just sit back and wait for the target to be hit. The alternative is to turn to the smaller time frames in search of entries according to your trading plan and trade to the bigger target in a series of smaller swings using Fibonaccis as guidelines for our entry and exit. This is a very much more involved pathway to achieving the target on the larger time frame.
For more information about trading styles, watch this video featuring MTI’s Jose Tormos:
Having considered all this, it’s not impossible that after deciding what kind of trader we believe we want to be, that some time later it will emerge that a different type of trading style suits us more. This is normal and can happen to many traders once they get a deeper understanding of the Forex market and how to make money trading Forex. Whether your style stays the same or changes, it is imperative that we develop a trading plan around that style that is repeatable on every trade and is tried and tested to be a winning formula.
Analyzing your Forex trading plan
So, we now have a plan and applying that plan requires total commitment and discipline. The plan we have developed should consider numerous technical and fundamental aspects that might affect the trade we are considering. That’s why technical analysis and a proper education to understand Forex market movements is so imperative. To help us apply our plan to the technicals, I like using the full range of tools and indicators available on the unrivaled Ultimate Charting Software. Our plan will tell us that when our series of predetermined conditions are met, then we can enter a trade with confidence.
Personally, I like using the Man VS Pips indicators, as seen above, developed by Jose Tormos. This is mostly because, in my opinion, that indicator is top notch when it comes to using it with other indicators, such as trend line breaks and candlestick formations. When the Flippit signal is green, the market is bullish and when the Flippit signal is red, the market is bearish. Simply get in and out of trades at the change of the Flippit color.
Applying your Forex trading plan
This is where we must beware of the temptation to “jump the gun” and enter ahead of the rules of our plan being met. It is so easy for us to sit staring at our charts and recognize that we do not quite meet all the requirements of our plan, but we may think we are “close enough” and that within the next couple of candles, our required set up will be complete. Resist that temptation to think it is close enough to get in now. Always maintain complete discipline in ensuring your set up meets all the requirements of your plan.
A classic example of where we may believe we are close enough is when a candle has not yet closed but appears to be forming a large engulfing candle. Knowing the power of the engulfing candle we jump in before the candle closes, only to see the market reverse mid candle and leave us shaking our heads in disbelief at what just happened. We are now in a trade that is going the wrong way which we could have avoided by just waiting to see how that candle closed.
This is just a starting point of how you can determine your trading style. And remember traders, deviate from your style and from your plan at your own peril! Be a disciplined trader and as Joshua Martinez (Pathfinder) always tells us: “Be a patient trader, it will increase your chances of being a successful trader!”