Often times, we see a post that reads something like this:
Hello T2W!
I'm a total Newbie and I'm ready to learn how to trade successfully. I want to know how I can use a simple Moving Average Cross over System, to consistently make profits. I'm open to suggestions and I am ready, able and willing to learn. What MA periods should I use and what time-frame is best to trade?
Thanks,
Newbie
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My answer to the Newbie is this: If you want to use simple MAs, then you need to become a Tactical Combat Trader. Which means that you have to go to Tactical Combat Trader School, where you can teach yourself to become a fighter, survivor and winner.
Using the MA:
The period for each MA is 21 and 7 respectively. The MA type almost doesn't matter, but go ahead and use EMA. Set both EMAs to calculate their respective lines on Close. Set 7 to Fast and 21 to Slow. Set Fast line to color Green. Set Slow line to color Red and plot both MAs on the M1 chart.
Use a demo account (a no brainer), until you can consistently pull down at least 30 pips a day (minimum). This is not hard, nor is this difficult, AFTER you've understood the reasons behind
why this works. Until you discover those reasons, it will be difficult to handle the losing trades that will come with such a method.
The fact of the matter is that in order for this to work at optimal levels, you need additional indicators and/or knowledge that I am not able to give you. However, after you spend some time with this "method," you will come to realize exactly what those indicators should measure and what information they need to tell you, in order to optimize this method into a trading strategy. If you get really good, then you won't need any indicators at all, but that will require that you spend a lot of time, working this methodology.
This is Trading 101 and it does not get much more simple than this for the Newbie. This method, if used correctly and if studied long enough, can teach you about Timing, Direction and Magnitude and give you some leads on how to start thinking outside the box on price behavior. Probability and Money Management Modeling, are different components and should be learned separately.
Basic charts needed:
- Monthly
- Weekly
- Daily
- 4 Hour
- 1 Hour
- 30 Minute
- 15 Minute
- 5 Minute
- 1 Minute
Chart type:
Optimal trade logic: (very rare)
Long if;
Monthly Candle = Green
Weekly Candle = Green
Daily Candle = Green
4 Hour Candle = Green
1 Hour Candle = Green
30 Minute Candle = Green
15 Minute Candle = Green
5 minute Candle = Green
and if;
Green line crosses Red line
Short if;
Monthly Candle = Red
Weekly Candle = Red
Daily Candle = Red
4 Hour Candle = Red
1 Hour Candle = Red
30 Minute Candle = Red
15 Minute Candle = Red
5 minute Candle = Red
and if;
Red line crosses Green line
General trade logic: (high frequency - skills development)
Long if;
Green line crosses Red line
Short if;
Red line crosses Green line
NOTES: (you need to read each one very carefully)
*** Set your trading platform to execute all market orders with a 5 pip Stop. Exit
net positive positions when opposing trade logic triggers opposing order - before - position turns
net negative. (assume the spread as lost capital and the cost of doing business)
*** At the outset, it should be easy to see that rarely will the market generate Trade Logic conditions that are always optimal and that conform to the first set of rules above. However, plenty of entries will existed under the General category of trade logic. The not so obvious lesson here, is that the General trade logic will net you the most significant education (in the shortest period of time) in Price Behavior and the absolute need for proper Money Management in any form of trading. Remember, this is Trading 101. If you learn the lessons well in real-time, you will learn a lot about how to properly enter the market and how to properly exit the market.
*** To learn the lesson well, stick to the M1 chart for all entries and exists. The M1 Price Behavior will burn into your visual memory - that's good. Eventually, you will learn that Price "Behaves" the exact same way in all time-frames and that will make it abundantly easier for you to learn how to enter and exist on larger charts. The M1, is a very fast Teacher and having the added pressure of trying to exit every position with net positive gains, will accelerate the lesson even further.
It will focus your mind on the most efficient reversal and continuation patterns that the market provides on a routine basis.
*** This is a
manual trading methodology and a physically intensive process - do not allow outside distractions in your trading office. Your mental focus, will determine your level of success and/or failure. Don't allow disruptions, or you will miss the point of the entire exercise.
Always remained focused on M1 and your Fast -vs- Slow lines.
*** Google the terms: MFE and MAE as they relate to trading. For each trade, note the respective MFE/MAE in absolute value and in Ratio form, where you divide MFE by MAE to obtain the ratio. The smaller the ratio, the more your skills are improving and the more you are learning about Real Magnitude. Keep a log of this data - Excel is preferable as you can do analysis on the data later.
*** This process is for your learning and skills development. This is to show you that you can consistently net profits in the currency markets -IF- you learn the lessons that Magnitude has to teach. The concept of Magnitude will become readily apparent to you, as you progress through this process.
*** Keep in mind that this is NOT an optimized Trading System and your results will NOT therefore, be optimal. Optimal "conditions" for the "trade logic" were given, to help you better understand the need for
Directional synergy in higher time-frames, as you develop your own Trading System down the road. (very important)
*** This is NOT a "grail" methodology. However, with the proper skills added, one can turn this method into a profitable Trading System - with a lot of work, creative thinking and outside the box solutions.
None of which can be given to you through a post on the internet!
*** The actual Trading System employing a
more advanced version of this methodology (one of three different trading systems that I have developed), does not use a Stop. The 5 pip stop that you see above is
psychological training tool for you. Your brain needs to understand that if you trade the correct currency pair, during the right part of its
Directional Life-Cycle, your winners will outweigh your losers, nearly all the time. When I run this particular system, I use multiple-pairs with unique characteristics in relation to each other, so I don''t need a Stop. This "method" is NOT that advanced Trading System, so use the Stop level as stated above.
You can and will (if you stick with it) learn a lot not only about yourself as a trader, but about the daily life-cycle of your currency pair. If I were a new trader, I would spend quite a considerable number of hours in front of my computer screen each day using this set-up, until I could predict the M1 Price Behavior of my currency pair at will.
*** This trading "methodology" DOES NOT tell you where price is going for the next billion number of pips, nor does it need to. This methodology will teach you one of the most important lessons that any new trader can learn about currency pair trading:
Why Magnitude is so important to consistently being profitable. The reason this is such a good tool for learning, is because every major Bull or Bear run, starts with M1.
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I call this method,
Trade Combat Maneuvering (similar to Aerial Combat Maneuvering), where you learn to keep your adversary in front of you at all times. You might not understand that terminology right now, but after many hours engaged with the market this way - you will.
Welcome to Tactical Combat Trader School. You will teach yourself how to push your tactical trading skills to the limit. You will teach yourself how to fight and
how to survive. You will teach yourself how to fight and
how to win.
If you graduate, you get to join the 65th Aggressor Squadron, where harassing other traders in the market is considered sport.
Let me know if you need some help in setting up your HUD (trading screen). Remember, the hard-deck for this training HOP is 5 pips. No more, and no less. Let the trade logic be your Limit for now, until you acquire more combat data in the form of MFE/MAE absolute and ratio performance.
In a more advanced step, you will take the MAE/MFE data and start comparing that to the increasing uniformity in the charts with the optimal trade logic rules. To optimize performance, you will need to take a more advanced step and go inside the MFE/MAE data to locate the point at which that ratio begins to get smaller, as you use more Directional synergy in the charts of the optimal trade logic rules.
The goal is to work your way towards finding the optimal Directional synergy in the charts, by using MFE/MAE historical data. This is as advanced as I will be able to take the discussion about how to trade using only two MA's. The rest belongs to my system and I'm not giving that away. However, with some outside the box thinking, you can build your own.
Now, get those charts and MAs set up properly! Newbies need to learn how to survive - first. Your best offense, is a better defense. And, that is what this will teach you. No defense - no long term success. That's the nature of this business. You need Dog Fighting skills.
