Deutsche TradingFX
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Trading Rules & Advice

From trader7757:

“I am a long time (I retired at age 50) institutional trader and an infrequent contributor to this thread. You can take my word for it that being an institutional trader is not as glorious as portrayed by the media. It’s a lot of hard work and you often labor under incompetent superiors and cut-throat co-workers. That being said, I am happy to be running a boutique sized trading firm and trading as I see fit.

What’s the key to trading? For me, it’s knowing how to trade. You can spend hours reading books, trading on sim, and all sorts of nonsense that is our there. But, more than anything, trading is a style of thinking which you develop through knowledge and experience. I am a dyed-in the wool order flow trader, a scalper, and have been most of my career. Order flow trading is not easy to master, and a great mentor is a real help. Of course, I have the transparency of futures markets where I can incorporate volume and other variables to get an edge.

Since I am now a retail trader, in essence, I have had to adjust to a different mentality. I am the hunted, not the hunter. However, if you can find a way to keep track of what the major players are doing you can certainly succeed. You just have to know what the institutions are doing, what the locals are doing, and understand why price action is moving in a certain pattern. That being said, here are some tips that make me successful:

1. Learn the mechanisms that cause price movement. (it’s supply and demand, in a convoluted format)
2. I spent some time learning auction theory and game theory, which is a great help. (it can be a little esoteric, I admit)
3. Spend a good deal of time watching chart movement. If your platform has market replay, trade every night. Keep track of the characteristics of winning trades and losing trades, be meticulous.
4. Study reversion to the mean techniques, they have a tremendous record of success. I use polynomial regression channels, 225 SMA, sigma 2 and sigma 3 as the parameters. The market seldom strays beyond 3 sigma; that’s when I take trades back to the mean. This is outside-in trading and it works.
5. Strive to understand the relationship between support and resistance and volume, especially as it relates to zero-sum games.
6. Ask questions about movement you don’t understand. How come price sometimes moves down on positive economic news? There is usually a factor that has not entered into your trading equation. That’s bad. Understand the outside factors that may effect your trade; factors you can’t control.
7. The market always moves according to what the largest players want; they are in complete control. Trade with them, not the retail guys.
8. Don’t chase price, please do not chase the price action.
9. The best and most reliable chart pattern, and the only one I use is range compression. When the price range compresses, you can expect a break-out or breakdown. This is the only breakout/breakdown pattern I trade. The other breakout/breakdown patterns have a 70% failure rate. Support and resistance breakouts usually fall into the classification of price chasing, but not always; learn to live with missing a good breakout.
10. Winners keep score. Assign a specific classification for every entry and keep track of which entries are successful and which are unsuccessful. Even tougher, learn to exit with an acceptable profit or loss. (hint: lacking order flow technology the Average True range can be very helpful.) Know the % of success for each classification of trade you enter.
11. Know your limitations and never risk more than 5% of your account on a trade. Once you can calculate your stops with some proficiency, calculate what getting stopped out will cost you; if that amount is greater than 5% of your account don’t take the trade. I’ve made more money on trades I didn’t take than trades I executed.
12. Don’t trade on hope, hope always losses. Have a sound understanding of your expectations of a trade and monitor your trade to meet your expectations; if the trade isn’t going as planned, get out. You do not have to let you trade hit your stop/loss. As an aside, when I see a trade moving aggressively against my position I often reverse with good results. Don’t know if that is a good strategy in forex or not. Forgive my ignorance.
13. Don’t give up, keep trading. Unless you just don’t have an trading ability at all, this is a game of perseverance. The longer you trade, the better you get. There are no magic books and the market makes folly of logic, common sense, and other human frailties. Learn the trade set-ups you consistently win and keep trading them, learn the trade set-ups you consistently lose and avoid those trades. Find a mentor!”