Building a trading strategi

Many new traders jumps head first into the trading world without any knowlege about the markets. The opportunity to see money grow by itself can be very tempting. One thing is to buy some shares from your savings, expecting the company to grow over time. Another thing is to trade the markets.

As weird as it sounds, it's actually easier to tell you what not to do when developing your strategy, than telling you how to do it.

We've mentioned it before, - You yourself is your worst enemy when it comes to trading.

Jumping from one strategi to another will only make the process frustrating, and in the end unbearable. If you are searching for the holy gral, then stop the search right away and insted start working on your skills.

 

What you don't wan't to do when taking positions in the markets, is to jump on some hype, or listen to popular opinions. Should we mention Bitcoin and the Swedish stock Fingerprint cards? Can you say pump and dump schemes? Well, let's leave it at that then.

To become confident in your trading you really need to make some rules about how you want to approach the market.  A trading strategy should be built on your beliefs and your personality. You are the creator, and you decide when your trade starts, and when it ends. 

The only thing you know for certain about the markets is that it moves up, down and sideways depending on what byers and sellers decide to do. You don't know why these people would buy or sell, and you really shouldn't care. What's importen is what you do, and why you do it.

Finding your strategy is not easy. Start with what makes sense to you and go from there. If you believe price levels are importen, then maybe a breakout strategy is for you. Or maybe you like riding along trends, then you should try to find a way to follow the market trends.

Below we will post some charts for you to explore. Hopefully these charts will help you find a way to approach the market.

Swing trading

If you are the kind of person who only wants to check in on your trades once or twice a day, trading the higher time-frames would probably be the best thing for you.

We'll start with a the currency pair USD/SGD (US dollar/Singapore dollar) on the daily chart.

 

The price takes a new direction when making lower highs and lower lows. This indicates a new trend. Trends can often last a long time and you need to be patient. It's very common for traders to get out to early when pullbacks occur. It's hard seeing your gains disappear,  and you need to trust that the market will do the jobb. 

Having a exit plan is always important. As you can see on the chart, the falling trend halts for more than 3 months, and it looks like the bears (sellers) are running out. The bulls (buyers) are coming in strong with a breakout, reaching the resistance zone.

You could  trade the breakout, taking your profits when hitting resistance, or you could wait and see if there is a change in trend direction.

Day trading

If you on the other hand would like to manage your trades more active and take trades more frequently. Taking trades from the 1 hour or maybe all the way down to the 5 minute chart could fit your style.

 

Below we have made a setup in Fiber (Euro/US dollar) using the 5 minute chart.

When trading smaller time-frames you should pick a session to trade. Volatility is higher then. 

This trade will be taken during London session CET time.

Getting up early in the morning, we start by drawing the support and resistens lines (yellow lines) in the 1 hour time-framewe then open the 5 minute chart to find our trade.

Using EMA 14 (yellow) - EMA 50 (green) - EMA 200 (red)

The first thing we notice is a bearish engulfing candle being printed right before 6 o'clock this morning.

At 6.50 am price pushes below our line and down through EMA 14 where it leaves 2 big bearish candles, making the EMA 14 cross over EMA 50.

 

We enter with a market order, and place the stop loss above the engulfing candle.

At 7.45 am the EMA 14 crosses EMA 200, and 30 minutes later we hit target 1 closing half of our position. We now move the stop loss to break even at our entry.

We almost reach our next target, but price makes a pullback. Now is a god time leave the charts, Mr. Boogeyman (trading psychology) is playing Jedi mind-tricks with us.

When we check in later, the price has been rejected from EMA 50, this is where we now move our stop loss.

 

11.35 am we hit our target 2. What a beauty!