Tag Archives: trend
Do You Have An Unconscious Trading Bias?
Do you have a trading bias? Or are you a trader that is comfortable on both sides of the market?
What is a trading bias?
A trading bias can be an opinion about the market, or a certain currency pair, but it could also be an unconscious behavioural pattern that is affecting your profitability in the market.
Many traders do not realize they have an unconscious trading bias, but recognizing that you have one, and understanding how it can impact your trading performance, is something that you may need to do in order to make yourself a better trader.
Trader psychology does play an important role in trading, fear and greed are the most common problems that traders have to deal with on a daily basis, but if you have been trading for a while, as I have, there are some interesting characteristics that you may be applying to your trading behaviour, without actually realizing it.
When I first started trading.
I have been trading for almost 25 years. I first started trading equities in the early 90’s. When I started out on my trading career all those years ago, I did not have all the sophisticated charting software that we have today. I remember having to plot my charts on graph paper that I purchased from WH Smiths.
I first started out as a retail investor rather than a trader, plotting my charts by hand with end of the day prices taken from the Financial Times. My strategy was to buy and hold, buying value on dips, and following the long term trend. I had never heard of shorting, and with the limited resources available to me, I only really had the option to buy stock. So my brain was conditioned to only look for buying opportunities.
This early learned behaviour pattern has unconsciously been carried with me all my trading career. Even now when I am trading, I always feel more comfortable when buying rather than selling. These early trading experiences have shaped my trading psychology to this day, and there will be others in the same mindset.
Did you start your trading career buying equities?
If you started out in equities as I did, there is a good chance you will be more comfortable with long positions, rather than short positions, as I am. This bias does not stop me from taking short trades, but it just feels a little more normal when I am long.
If you keep a trading diary as most traders do, it would be a good idea to look back at the trades you have taken, and compare your long trades against your short trades. Are you taking more longs than shorts, or vice versa? Also look at the profitability of your longs verses your shorts.
An unconscious trading bias can also affect the length of time you stay in trades, so check that too. Are you mostly staying in long trades or short trades?
Knowledge is the biggest asset to trading profitability in my opinion, but it will help your trading if you can understand your trading behaviour, and recognize any trading bias that you may have, that could be affecting your profitability in the market.
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Thanks for stopping by, and have a great day. 🙂
Counter Trend Trading
Today we have been counter trend trading. Counter trend trading is basically trading against the trend. Now depending on what time frame you trade you could be counter trend trading without realising it. For example if the daily trend is down, and you are trading the 15 min time frame, and that is in an uptrend you are counter trend trading the daily trend.
Trading against the trend is very risky, and should only be undertaken by very experienced traders as you can lose a lot of money very quickly trading this way. I like counter trend trading myself and often trade this way. I don’t encourage my students to do this though, but i can teach you how to do it very successfully. Its not something i do every day, but today was a good opportunity to CTT, so i did. 🙂
OK so here are my counter trend trades for the day.
We took 6 trades in total, for a profit of 58 pips. It does not sound a lot for 6 trades, but when you are countering, you cant afford to hang around waiting for big pips, you have to take what you are given.
The first trade of the day was a Euro short entry at 12953, exit was at 12939 for 14 pips.
At the same time we had an EJ short trade which did not really play out as expected so we closed that one for 4 pips profit.
The second trade of the day was a Cable short trade. Entry was at 16151, exit was at 12986 for 14 pips again.
Then we had another Euro short for 4 pips followed by another Cable short at 16170 exit at 16158 for 12 pips.
Last trade of the day was Euro short at 13003, exit was at 12993 for 10 pips.
6 Trades 6 winners.
I also have another Cable short at 16181 that is still running. I may get this off tonight for a small profit, or i may let it run until tomorrow. We should have a decent move down tomorrow in dollar pairs as the dollar has been pretty weak today but i expect it to come back tomorrow so i will be adding short trades on tomorrow, trading with the trend. 🙂
If you want to learn how to trade Forex like a pro please consider my Forex training and mentoring program. Its well worth the investment. When you know what the chart is telling you you can trade in any direction and make money. For more info please click here.
Trend Trading
What is trend trading?
A trend is formed when the price makes higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend)
Here is an example of an uptrend. See how the price makes higher highs and higher lows.
Here is an example of a downtrend. See how the price makes lower highs and lower lows.
So how can you use trends to make money in Forex?
OK, say the market is in an uptrend as per our first diagram. Where would you enter a long trade (buy) based on that trend? If you said either low 1, low 2, or low 3, then you would be correct. These lows are known as pullbacks, or retracements. Entering a trade at a pullback or retracement is the logical place to enter a trade when trend trading.
So moving to our second diagram, where would you enter a short trade (sell) based on that trend? Yes you are correct, you would enter short at high 1, high 2, or high 3.
Now its very easy to look at a historical chart and see the places when you could have entered a trade long or short, but when the market is moving and you are in real time then its not so easy, as you don’t know what is going to happen next. If you knew which way the price was going to move next you would be a very rich man, or woman. 🙂
As you do not know for certain what is going to happen to the price, you have to work on probabilities.
If you draw a straight line connecting the lows in and uptrend, or the highs in a downtrend, you have just drawn a trend line. Drawing an extended trend line will help you see into the future as far as price is concerned. So on that basis if you are in an uptrend, and the price has previously bounced of the trend line. There is a probability that it will bounce off that line again.
So the logical place to enter a trade based on a trend is at the trend line, as you can use a tighter stop loss, so your risk reward is greater trading this way. You are entering a long trade, at the logical place, (the trend line). And you would place your stop loss just below the trend line, so if the trend line does not hold, and the price breaks through the trend line to the downside, your tight stop loss will limit your risk.
Depending on what time frame you are trading your stop loss could be as little as 5 pips trading this way. And if the price does bounce off the trend line, and continues its uptrend taking out the previous high (3) your potential risk reward is very good indeed.
When trend trading you need to be aware that the longer a trend continues up or down the more likely it is to reverse. You may get 3 or 4 or 5 or more swing highs, but with each swing high the likely hood of a reversal is greater, so entering a trade in the direction of the trend becomes more risky.
Fundamental Analysis V Technical Analysis
This is a big point of conflict for a lot of Forex traders. Do you follow the news, which is fundamental analysis, or do you follow the charts, which is technical analysis.
If you have a background in trading and investing in shares, then you will probably be very comfortable with fundamental analysis. Its very easy to get hold of fundamental information for a company, and therefore, easier to make a decision to invest, based on how good a company looks fundamentally. But there are so many variables to fundamental analysis of currencies, it is not very easy to trade currencies based solely on that. If Ben Bernanke gets out of the wrong side of bed, it can affect the price of the dollar. Yes this is an extreme example, but you get the idea. Some traders only trade on fundamentals, and would not thank you for a moving average or a trend line, but i am not one of them. I am purely a technical trader, and 90% of my trading decisions are based on charts rather than news. I do pay attention to the news, as this can affect my decision to enter or exit a trade.
For example, if i know that there is market moving news about to be released, i will generally not enter a trade, or i will close out of a trade if i am already in one. The reason for this is the fact that the market can move very erratically when news is released, and the technical analysis aspect generally goes out of the window when that happens.
I do pay attention to the fundamentals of currencies, as its in my interests to do so. For example, its seems like forever that the Euro has been fundamentally weak, and although i have taken many short term long positions on Euro Dollar, i would be very reluctant to invest heavily in a long term long position on Euro, because the majority of traders are shorting it, so i would be bucking the trend. Bucking the trend is not always a bad thing, but in the case of the Euro i have a bearish bias, as do most traders, so opening large long positions in Euro Dollar is not a good idea in my opinion.
Fundamental analysis and technical analysis are both time based indicators, but technical analysis is much more flexible in my opinion as it can be applied on a much shorter time frame. For example you can trade technicals on a 1 minute chart, but you cant really trade fundamentals that way. Fundamentals are generally traded over a longer time frame, weeks to months rather than days. As i am a day trader technical analysis gives me far more flexibility than fundies, and are by far my favorite way to trade.