Learning Forex Daytrading -  The right approach

The good news first: Learning Forex Daytrading is possible. Unlike other competitions you don't need to be gifted with certain talents. Of course it helps if you have some talent for trading but this is no requirement to be profitable in the long run. This leads to the bad news. Unless you are a “natural born” trader you will have probably to invest a lot of time and willingness to become a successful trader. The key to become successful is to have an edge over the other participants in the market or at least over the most of them. You don't want to play the game if you don't have some sort of edge. If you don't have an edge you will lose over the long run unless you get incredible lucky. Compare it to a casino. The house wins because it has an statistical edge over the gamblers. Only the lucky ones win against the house but against the majority of gamblers the casino always wins because the rules of the games favor the house by a small margin. Trading is also a game of probabilities. Nobody can always make right predications of the market but there are always situations where one outcome is more likely then the other. You have to play the odds. Trading comes down to finding an edge and high probability setups. So how do we find the edge?

Imagine you would turn on your trading platform and immediately know what to do after just checking a few things. Wouldn't that boost your confidence every time you take a trade? The key is to have a trading plan. This includes not only to know when to trade but also- and this is even more important- when not to trade. You simple don't plan to trade when you don't have an statistical edge that this trade is probably a winner. “Probably” is the key word here. We don't know if it is a winner for sure but the odds should be in your faour. Since we can't look into the future we have to look into the past to see what trade would have the best in a similar situation. A trading system is a good approach to make your trading less random. If you have a certain set of rules when to trade and not to trade than you are able to see what works and what does not. Trading just by gut feeling will never give you that feedback. Of course a trading system can also fail in certain situation over a longer period of time but looking into the past gives you a pretty good indication what kind of setbacks you can expect. Meanwhile we are in the lucky situation that software can do the back testing work for you if you have a good idea. Keep in mind what the market really is: It reflects human behaviour. And human behavior does not really change. This means also the structure of the market does not change. You will see the same patterns over and over again. Identifying such patterns is one way to earn an edge over others.

Teaching members how the market really works is one of our priorities in our trading room. The more you understand who is trading the market and what are the intentions of the different players the better you will get in picking the right trades. The intentions between a central bank and the Average Joe Trader are completely different. As an example usually month-end brings with it a natural demand in Euro against the British pound as the Bundesbank buys euros with the pounds that the UK pays the EU for its monthly contributions. Once a year (end of September)though it’s not that simple as we also see the annual farming subsidy paid back to the UK so that results in a demand for GBP.  Nor does the the average trader usually knows about these things-he trades the EUR/GBP just to make some pips. Moving the price in EUR/GBP in the last day of the month is done by the exchanges between the German Bundesbank and the UK and not by retail traders. Banks,Hedge Funds or Marco Funds on the other hand also have the power to move the prices but also driven by the intention to make profit. So it is important to understand why the market is behaving like we see it every day in our charts.

What do we teach in our Live day trading room:

-Who are the participants in the market

-What are their intentions

-In what direction bets the “smart money.”

-In what direction bets the “dumb money” ( keep in mind 90% of retail traders loose)

-How can you profit from identifying who is trading, why and in what direction

-How can you make predictions by comparing the actual situation with the past- Remember: The human behaviour trading financials market has not changed  in centuries and it it is unlikely it will ever change. You could argue that most trading today is computerized. But this makes it even easier to find repeating patterns since the algorithms trade the same “IF-Then” conditions patterns over and over again. And all algorithms are losing their edge eventually and have to get adjusted. This is done by obviously by humans. So in the end the main difference between an algorithm and a human trader is just important in the ultra high frequently trading since it trades a lot faster then a trader at his desk.

-Combining the structure of the market with technical chart analysis to have the best possible winning odds for a trade.

There is certainly no holy grail- not the one and only right approach to trade the market. But you should be prepared for your trading day and have a trading plan and tools to help you with that.

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