Allow me to give more detail on how I trade FX to give a clearer picture on how I find setups.
First off, I analyse the markets both technically and fundamentally. The technical aspect is to find possible levels of entry as well as spotting how the market is behaving in specific currencies. Given the fact that I don’t set stop losses and I do position trading, I use fundamentals to back up my positions in short to medium term.
Now here’s a rundown on the technical tools I use:
– H4, D, W (mostly D)
– Support and Resistance levels
– Fibonacci Retracement
– Trend Lines
– Chart Patterns
– Price Action
– Harmonic Patterns only if present
I place more value in searching for levels of entry more than the price action itself. This means, I tend to anticipate more than entering at confirmation but when confirmation does appear, it doesn’t necessarily keep me from entering a trade. I would also buy the pullback after a confirmation. The approach is more strategic than systematic.
For fundamentals, I set my biases based on the monetary policy guidance of Central Banks. Any intent to tighten monetary policy sets me to go long while any intent to ease will set me to go short. The data that comes in between the policy guidance and the actual rate hike is what I view as headwinds or catalysts. When data aligns with policy guidance, then it’s a catalyst. When data is against policy guidance, then it’s a headwind that may lead to an opportunity to enter.
I generally do not set stop losses but it doesn’t mean I don’t cut losses. I do hedge.
What I put more importance in trading is the risk and money management. I stay away from correlated pairs. This means that when I have a dollar pair, I will not go into another dollar pair anymore. I trade a maximum of 3 pairs only and when I do things get definitely tougher with 3 than 2.
Some people have asked me how I compute for my volume if I don’t set a stop loss. I generally base it on the equity value of the account and that would considered be a single position. A 3,000 USD allows me a 3,000 units per position. Depending on the number of currency pairs being traded, I could go up to 10 positions at one given time.
I hope this post explains why I manage to keep losing positions at bay and profit from them while going against me and also back to when it becomes favourable. Some of the trades I shared where I applied this are: GBPUSD, NZDJPY, GBPCAD, GBPJPY.
The biggest threat to this approach would be a black swan event such as Black Wednesday and lifting of the EUR peg by SNB. In such cases, a smaller position size is the only way to avert such risks.
So please follow trades posted at your own risk.