TRADING APPROACH - METHODOLOGY

Its not rocket Science.....

OK - welcome to what i believe is the easier part of the Trading process

 

I believe that with some decent research, focus, experimentation, some mentoring plus dogged effort and determination - anyone can put together a decent trading Method !

 

There are many many good systems , patterns and indicators out there and lots of good advice on the basics of Trading Execution, Money Management and everything else on the nuts and bolts of trading.....

so lets quickly take a look at what you have to get organised to create a decent "Methodology"

I feel this is split into 3 areas :-  

MARKETS

TIMEFRAME

SYSTEM

MARKETS

you will need to identify what market(s) you will trade :- 

Stocks and Shares 

Indices (FTSE, DOW, DAX etc)

Commodities (Oil, Gas, Wheat etc )

Gold, Silver (they could also be included in above)

Forex 

Each have their own personalities and characteristics - research and see what fits you closest.  

 

TIMEFRAME

you will need to decide if you will specialise in any particular Timeframe/Charts

 

(Monthly, Weekly, Daily, 4H, 1H or lower)  

This will be closely aligned to your system decisions made below and lifestyle needs

 

SYSTEM

there are 3 main things you need from a Trading System and the related Signals  :-

What direction to Trade 

Entry Criteria  

Exit Criteria

These rules must be 100% robust, practical and aligned for the trader to apply them based on their lifestyle and screentime availability  - missed trades will be reducing the sample size  - essential for understanding if a system is performing profitably and worth progressing.

 

There must be no doubt on the rules or any "gray/fuzzy" areas. It is extremely easy to slip into "90% signals" where you nearly had all the rules aligned to signal a trade, but still felt obliged to trade it anyway (See the MIND area regarding how to avoid doing this kind of destructive behaviour).

 

Even the first Rule ....What direction to trade .....if you get it wrong you are already going to lose your next trade - regardless of how good your other processes are...so be absolutely rigorous in creating a robust strategy for establishing your directional bias  / direction to trade ...and always be ready to change that bias quickly if necessary based on conditions ...I do !   

The rules will then be clarified by your research and choices/decisions made in the 6 areas below  : - 

Charts

Patterns

Indicators

Fundamentals

News Releases / Events 

Money Management 

Charts 

Standard Timeframe based charts, Price/Tick based charts (eg:- Renko, Heiken-ashi, Market Profile)

Candlestick, Line, Bar style

Patterns 

Candlestick patterns (simple to complex), Fibonacci

Price Action - Trend (HH/HL, LL/LH), Support, Resistance  

Indicators (top 10 suggestions below)

Moving averages, MACD, Stochastics, RSI, Donchian Channel, CCI, SAR, Bollinger Bands, Itchimoku.

and the 1000's more available (mainly derivatives of above) - Including my FXCorrelator (hint !)  

Fundamentals 

what are the underlying Economic, Political and Business drivers for the instrument being traded within its Market environment ?  (eg Country interest rates for currencies)

News releases / Events 

Any news that affects the instrument being traded based on importance. The more important and unexpected the event the higher chance the market will be affected.

Money Management  

% Capital allocation to each trade or portfolio, any other financial decisions needed within the Entry and Exit Criteria rules.

I am always updating my Methodology information  - please alert me to anything else you feel is important 

Neil 

NVP