Friday, June 5, 2009

MY APPROACH

I have not posted anything on the blog in quite some time, but because some have asked to know more about the methodology by which I trade I thought it might be helpful to write about the methods I use. I may be repeating myself from earlier posts but afer all, repetition is how we become succesful. First of all let me say (for some who may not know) that the foundation for my trading comes from my mentor and friend Chris Lori. The techniques Chris uses and teaches were introduced to me after I had searched and tried many "systems" that never worked for me. Chris taught me to trade based on price, and nothing else. I have attended several workshops with Chris and after purchasing his video course I went to my first workshop.  Unfortunately, I had "learned" better and thought that the more difficult a system was to implement, the more money you would make and didn't implement the methods Chris taught right away. I could not have been more wrong.  I still struggled and lost money. One thing that Chris teaches is having strict discipline with your plan and I didn't want to use discipline. I wanted to be in the market all the time like a gambler at a craps table. After observing other traders who implemented these methods,  I finally realized that I must do what they were doing if I was to succeed . I have been trading the methods from Chris now for three years and I will say that I do not think there is a better method. Let me emphasize, however, that I had to come to terms with my own psychological weaknesses and address them for ANY method to work for me. It was only when I also decided to do that very thing that my trading turned the corner. Now I can say that my account is growing steadily and even though I have struggled at times, I realized that the method of trading price based should remain the same.

In my opinion, the key to trading is learning how the market moves and adapting to it's environment. Support and Resistance are the heart of that movement, but there are other little "quirks" that you must pick up on as well. I will try to point out a few of those, if not in this post in others, however, the best thing you can do is get a lot of chart time viewing price behavior at critical levels. Combining this with patterns and fibonacci is how I find trades. When searching for a trade I look for:
  • Longer term key price levels using weekly, daily and 4 hour charts
  • The sentiment of the market by reading reports and talking with other traders
  • Economic reports that might move the market
  • Ranges that the market may be trading in at the moment or could break out of
Once I have got my mind wrapped around my trading environment I will look for convergences at a certain price levels. The more reasons I have that a level could offer a good trade, the better. However, that doesn't mean I don't change my mind. This is where price behavior becomes the only indicator you need to determine if your trade set up is still valid. I consider the volatility and the "energy" price has displayed many times to make my decision on placing a trade. The following example of the USD/CHF can help illustrated what I mean. After the NFP report was released I was looking at a level for a possible bounce (1 hr chart). Many traders place trades trying to predict what the market is going to do . I have come to realize I can't "KNOW" what the market is going to do or which trades I take are going to offer good profits for certain. All I can do is trade what I see. The price behavior approaching the 1.0872 level on the this pair was kind of "creeping" up to the level (5 min chart). Please note this was before the spike on the 1 hour chart. It came within 10 pips or so but it wasn't showing any weakness. As a matter of fact it had cleared another level at 1.0855 and was now using it as support (another trade within itself). A times when asking Chris "what do you think about a long at this price or a short at this price?" and he would say, " I will watch price around the level." I would come away shaking my head and think "what does he mean, watch price?" Well, now I know. You see, just because you have a level does not mean you should trade it every time. In my opinion, you should let the price behavior tell you whether or not to take a trade. On the USD/CHF trade set up, price really showed me that it wanted to go through the level I had eyed. It came within 10 pips and formed a trading ranged just beneath it. Think about it this way, if you trade S/R levels and it forms S/R just beneath where you would anticipate a bounce, what is likely to happen? It will likely use that as S/R again. If you view the 5 minute chart you can see that's exactly what it did. So does that mean the level is invalid and cannot be traded at all? NO. You see, when you observe price behavior there just wait and be paitient to see if price is going to hold or reject the level. It's a very good way to get a good fill and put the odds of low drawdown in your favor. With this set up happening on Friday we don't know how the level will play out, but look how it did come back below the 1.0872 and start holding there. Price will most times tell you if it is going to commit above a level or not just by observing price action.
Chris, BRV (nobrainertrades.com), you and I can all use different methods for our entries, or our money management approaches and our trading techniques, but one thing is for sure, price has a behavior, and if you really want to cut your losses short and let your profits run, then learn the true nature of price, in the NOW, and you will achieve much more than success, you will have mastered of your skill.