Mechanics of Trading Module

One of my favourite words in the English language is actually a made up word that is in the title of a book. That word is simplexity.

Third we have the complex issue of dealing with two currencies representing two countries and economies, in opposition to one another.

And finally in terms of complexity we have market and price manipulation at a variety of levels, and on a grand scale, which should come as no surprise since in the last few years we have seen various cases come before the courts, with bank traders facing lengthy jail sentences.

The forex market is marketed and promoted as one which is available 24 hours a day, and whilst this statement is undoubtedly true, it is also promoted as one which has the same profile, characteristics and risks throughout this 24 hour period. And this is completely false.

It is perhaps one of the great ironies of trading, that we often have to consider things from the inside out or from the upside down, and none more so when considering the whole approach to the business of making money.

Risk comes in many different forms in the trading world, and it is perhaps a further irony of trading, that as traders we are considered to be risk takers.

If there is one aspect of the financial markets which exercises the authorities more than any other, it is the issue of leverage, and the reason is because it has the capacity to do infinitely more damage than any of the misleading marketing or fictitious claims you will read about on the internet.

Order types are a very personal choice, and whilst there are many available, every trader will have his or her preferences for entry and exit.

In the world of trading, there is probably more argument, debate and discussion about stop loss positioning and management, than any other topic, but in many ways stop loss positioning is where art and science meet, which is why, as always, there is no right or wrong way to approach this subject.

For any new trader coming into the financial trading world, the plethora of platforms, data feeds, and brokers can seem overwhelming, and in this video we have tried to simplify this down to the essentials of each aspect to help you navigate through this particular maize.

Building your trading approach is much the same as building a house.

In this module we are going to begin to consider the broad market approaches that help us with our trading tactics, timing and trading plan. And the place to start is by taking a look at the give broad approaches to the market.

The New York cut, the London fix and the order boards are three events which deserve special attention as they rarely if ever appear on the calendar of events, and yet they occur every day, and they can trap the unwary trader.

The currency market can be said to be one of mean reversion. No currency will ever go to zero, nor is likely too and hence every major currency is involved in an endless and never ending journey.

There are very few things I can guarantee in trading, but here is one.

In this module I want to explain more about the philosophy of learning to trade, of building longer term success, and how to build this on solid foundations.

Whilst there are many different components that make up trading success, perhaps the one which stands head and shoulders above the rest, is in understanding yourself.

Do you remember when you first learned to drive. Do you remember the feeling of being overwhelmed, the sheer panic, and terror when you were first asked to pull away from the kerb and out into the traffic.

It is one of the many ironies of life that we learn infinitely more from our mistakes and painful experiences than we do from our successes.

Remember – when you first start out on your journey as a forex trader, it’s not about the money, but about consistency.

As I mentioned in a previous module, new traders set their expectations far too high when starting out, and this fact is reflected in many different ways, and not least in the amount of money they expect to make and the speed with which they expect to make it.

You might think it strange to be talking about tactics at this early stage, and perhaps even more so given many traders struggle to forecast market direction with any degree of consistency, but in a doing so this may just explain the reason why.

As traders, we never ever stop learning, and in many ways we cannot afford to do, as markets and the financial landscape are constantly shifting and changing.

For a vanilla option, the contract specifies in very precise terms the amount of the underlying asset, the expiry date, the strike price and the type of delivery of the underlying asset.

Many new traders find it hard to believe, but there are as many tactics for trading as their are traders, and a quick look at the writings of the great traders of the past, and present reveals, not only the extent of this statement, but also that there is no general consensus about which tactics are the best to adopt, or which deliver the best results.

Now let’s move on to consider this topic in a little more detail, and if we start with the congestion phase of price action, what are the tactics we can employ here.

And so to the trend aspect of markets, which as I explained earlier, is the one most new traders will focus on, and there is nothing wrong with this, but perhaps if we stay with the congestion phase for a moment longer, this is the phase of price action where trends are created and born.

And finally we come to what many consider a boring part of trading, and that’s record keeping, and keeping that all important trading journal.

I want to refer back to the analogy I used in the previous video, because once again it makes an important point when running any business, but it is one few traders ever consider, and this is the somewhat mundane task of trying to measure success.