Forex Trading Articles

HOW TO APPROACH THE TRADING DAY LIKE A PRO!

By Vic Noble for Forexmentor.com
© 2006, Currex Investment Services Inc.

Dec 21, 2006

One of the most critical jobs that you have to do, as a trader, is to figure out the best direction to trade, based on the time frame that you’re trading in.

If you are a day trader, you will have a very short trading life if you can’t consistently get yourself aligned with the current trend of the market. So, how do we know which way the market is likely to move?

When you first sit down at your computer, there are some critical tasks for you to look after. First of all, you need to know what fundamental news announcements are going to be released during the time you’ll be looking for trades.

• Are they significant numbers?
  
• How much volatility is normally associated with these numbers?
  
• Are you comfortable trading in that environment?
  
• Do you have a risk control plan in place that addresses the issue of higher expected volatility?
  

Keep in mind that any announcement can cause big excitement (volatility) if there is a large deviation from the consensus expectation. In fact, large moves can occur even if the announced number is in line with expectations! But that’s another story for another day. The point is, as the Boy Scouts say, always be prepared.

If you don’t know the answer to any or all of the questions above, you’re going to be the recipient of some nasty surprises from time to time that don’t have to happen if you’ve planned things properly, notwithstanding the fact that sometimes, despite our best efforts at planning things out, the market just simply doesn’t go in the direction we anticipated—that’s just part of trading.

Assuming you’ve handled the issue of economic releases, your next task is absolutely critical, and that is, the ability to perform a proper top down analysis. What does this mean? Quite simply, find out what the bigger picture is doing and align your trading in that direction.

If you are using a 5 or 15 minute chart for your entry, it is not enough to just confine your analysis to those charts. I have talked to people that hardly even look at a chart beyond the 5 minute! As you can imagine, that will simply result in having your account chewed up very quickly by the markets.

I will give you what I consider to be a very good piece of advice. Spend less time on your lower time frame charts, and spend more time on the higher time frames (hourly, 4 hour and daily charts etc if you’re day trading). You will start to see things in a new way. You will notice support and resistance areas that you never noticed before. For example, have you ever bought and then almost immediately seen price make an instant and substantial move against you, stopping you out? You were obviously at some kind of a major resistance area and didn’t even know it! Maybe the 5 or 15 minute chart looked just fine, but consider this: The 5 minute and 15 minute charts are subordinate to the hourly, 4 hour and higher charts! The higher time frames have the strength, so you need to figure out what the higher time frames are doing and then look for a trade based on that information.

In part two of this article, I will show an example of how we want to look at price action top down in order to give ourselves the best chance possible to structure a winning trade.

Remember, keep your risk under control at all times, and watch the higher time frames for clues!

All the best,

Vic Noble
Forexmentor Personal Coach
http://www.forexmentor.com/coaching/

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