Forex and Investing Alternatives at

The 2012 Guide to Electronic Trading just came out, and our friends at TradeAlliesFX are listed inside! They have methods and tools available to help the individual trader make additional money in the FX markets.

These are mainly tools and semi-automated methods for making trades and extra money. There is no better computer than the human brain, but our desktop PC’s can execute instructions far faster than our fingers. It’s the melding of two great assets to help you Succeed At TradingĀ©

Are you Nervous When you Get a Losing Trade?

The reason I ask if you get nervous, is because one way to remove that is to have multiple trades at the same time. I previously mentioned that I trade multiple positions. I have discovered that when making only one trade, the psychological impact is still great. Even if I believe that there are losing trades (which there are) and I will also have winning ones, sometimes it is difficult to shake that losing feeling.

Nowadays, I trade with 2, 3, 4, even 5 positions; all staggered and of varying lot sizes. This is more of a scalping strategy, but the principle still applies. As long as the total trade is managed as one trade, then risk can be factored into the equation. No, profit will always be variable as compared to the single-position trade, but I find that is acceptable. More opportunities are presented this way, and losers can be made into winners because of the ebb and flow, or sine-wave patterns that are ever-present in the markets.

Sure, scalping is not for everyone, but depending on the situation, it is useful. Someone recently told me that day-trading is like driving a Ferrari. It’s a burnout waiting to happen, because the fortunes are made long-term. If you balance it, hopefully you can make a living while working on your plan.

What is the Best Trading Method, and Why?

There really is no better method to make money than the one that works for you. There are dozens of methods that work, and dozens more that could work. Just find one that suits you and your style. It’s not that hard to implement, but it is very difficult to find it. Look at how many traders take years to get to where they are. Remember the saying, “You make it look easy!”. That always comes after lots of hard work and lesson-learning.

If you are comfortable with short-term trades, like scalping or session trading, keep it up. Does the energy and frustration that comes with that style of trading drive you crazy, and long-term swings make you happy (and money)? Just keep on doing it. Are you a news trader? How about a volatility or correlation trader? Whatever works, just do it. Always remember to let the trade come to you, though. That helps tremendously!

I look at any ability as a “gift” of sorts. If someone is talented or skilled enough to create something, and do it regularly, isn’t that a gift? Keep in mind, though, the context in which you can use your gift. If you are returning 1/2 of 1 percent per day, for instance, and you only have $50, you will not make a living. Unfortunately, that’s just the way it is. But, if you can consistently do that, somehow you need to get a larger account, or slowly build it yourself.

Many of us think this (trading) is the answer to our dreams. In part, it is. But the sooner you discover what you can do well, the sooner you can plan how to grow that talent into a powerhouse that can support you, your family, and your dreams!

Does Profit Mean to Make Pips or Cash?

I’ve seen so many people require a certain amount of pips to be considered worthy of them following you, and the absurdity behind it. Really, how many pips makes the profitable account profitable? Usually (almost always) my methods entail multiple orders of varying size. Pips are relative, and now I have an average based upon my plan or mood.

There may be a couple short, quick orders. Or, sometimes I am trading several orders at 3x or 10x the initial (entry) order. The total profit is my primary figure: so +6 pips on a 0.1 order combined with +2 pips on a 0.2 order combined with -12 pips on a 0.01 order nets me -4 pips, but a +0.88 profit. Go figure!

What if I Trade for the Long-term?

There are many ways to day-trade, as well as intermediate and long-term levels.

You must practice patience at all levels, especially if you are an adrenaline junky. But then again, you would not be trading on a long-term scale if you are impatient.

Treasure awaits, regardless. But, long-term moves are certainly incredible, and you only need to catch part of it to retire!

What’s Your Edge?

So, what is your edge? How do you propose to get a leg up over the competition?

When gambling, the house’s odds are better that 50/50. Even if it is by a small amount, the house always wins.

When trading, you are competing against yourself, or more importantly, your account. Get an edge and beat the 50/50 odds. How?

Trade in one direction only, use one particular time frame, trade during certain house only. The list is endless. One thing is for certain:

If you jump from one method to another without fully understanding how to apply what you are leaving, then you re-start your play, and the odds are still against you.

Psychology and the Market

When I refer to psychology, I am not talking about market behavior or sentiment. I mean to say that it is the mental state of the trader that is in charge at that moment. The market will do what the market will do, there’s no stopping it. Independent countries can pump trillions of dollars into it, and after moving a measly few points, it reverts back and wipes out that infusion. After you have your well thought out trading plan ready (you did plan ahead, right?), you must not only execute it, but also stick to it.

I believe that once you have developed a positive trading habit, when you find yourself placing minuscule trades without effort, and not worrying about the outcome, because you are confident and not self-conscious, then you are on your way. Remember what I said about trading pennies? Any amount of money will cause your brain to wrestle with the possibility of loss, and then looks to minimize or avoid that loss. You know that going into that trade you may not succeed. Your brain doesn’t understand that, so you must train it.

Once I understood that psychology is ultimately more important than anything when trading, things just started to work. I became more confident, creative, and able to adapt to the changing charts (I don’t care what the underlying is). A separate psychological barrier is the size of the trades, but that will be discussed later. There are some people who are naturals at this, and they don’t have the mental blocks that others start with. They usually focus on other things that may need work. That’s just how us humans are made. It doesn’t mean that we can’t change. So, what are you waiting for? You can change your thought patterns with practice; go do it!

That Scalping Trick I Mentioned

Ok, I don’t have a picture, but you can get the idea from a description. This is what you do:

Go to your chart (any time frame, but for scalping I use 1M & 5M) set an SMA14 (or other favorite period).

Set another MA, but EMA this time. Change the line type or color as visual aid.

When the bars have traveled over (or under) both right about the time the MA’s crossed AND the bars are not hitting the MA’s AND there is a noticeable gap between the MA’s, you draw a trendline.

Draw this trendline starting about where the MA’s cross, and roughly bisect the gap. Follow the chart and gauge the gap.

When the price breaks the trendline, place your trade. Follow it to whatever feels comfortable. This more of a price-action following and revert-to-normal type of trading. Really, I’m just following the price as it swings back to get in balance.

Here’s some pictures (I changed my mind), you’ll see:

Chart 1Chart 2

It works better when the price is swinging away from both MA’s, and has to whip back on the curvature it drew on the chart. This could also be a momentum-type of trade. I don’t really care, because a) it works, and b) it follows the price rhythm. The diagonal trendline is dynamic from time to time, so there are no worrys about psychological price levels, etc.

This was on a 5-minute chart, at about 4 in the morning, London, so it was slow. That break was worth about 3.5 pips. Not much, but for this time of night, for finding that setup, it’s just fine. By the way, the next bar continued up, and made a total of at least 8, although I would have been happy with 4. Hey, free money!

Oh, and a great piece of advice that took me a long time to accept: Wait For The Setup!

A Simple Trading Method for Scalping

People always want to know how to trade. One method day traders use is quite simple. When there is a new high (or low) for the day, trade when that level is broken higher (or lower). Depending on the time frame of the chart, you could squeeze out a few pips, or more. This would be considered more of a break-out method. Check on the lower and higher time frames, to aid in confirmation.

Don’t just do it blindly. Sit there for a few minutes when it is close, to gauge the sentiment, and to look for spikes in the price action. Remember: everything gets built into the chart. News, volume, any other current events, even market-movers. It takes some practice, but can be done. On larger time frames, many pips are possible, but if you are scalping, a few should be plenty.

A modification of this is during slow trading sessions (holidays and off-hours), watch the wave patterns that develop, and avoid trading the breaks. During peak hours is the best time for this, because of the energy other traders impart to the markets.

What Moving Average Should I Use?

Traders, like most people, start learning the basics, then go forth with that knowledge. There is a statement floating about (I don’t know the source, probably no one does) that states, “95% of [Forex] traders lose money.” I don’t think that is true, because “lose money” is not defined. Yes, a net loss is a loss, but what if it is only by a few percent of the total account? I believe most people take that statement to mean: “My account got blown in the first few months!”

Anyway, many of these “losing” traders use moving averages. They are actually useful, more so than as a price indicator, because they also graph behavior. More in a minute. A basic way of using this is to use an Exponential or Weighted average (they place more emphasis of closer price fluctuations) and overlay it with a Simple average. The general trend – no guarantees here! – will be up when the EMA/WMA line is over the SMA, and vice versa. This is typical, but the MA periods are up to you, the chart master, to determine.

TIP: Those of you who study behavior & odds (like I do) will notice that when the (2) MA lines (as referenced above) cross each other, if that crossing is treated as a failure for not following in the same direction, you might be able to make some pips. I have a trick that I can share later, to illustrate. Can you find the behavior preceeding any cross?

I have noticed that longer periods are better at signaling crosses, as well as changes in the chart timeframes as related to sharpness of the crossing angles. The sharper, the stronger the cross will continue through without wavering. One thing that should be considered when using moving averages is if they follow the same pattern on related timeframes. Correlation still is useful, even here.