I have traded my own account for many years, trying most styles before finding my particular niche - day trading grain futures contracts. What seemed important in those early days now seems largely irrelevant. Instead, I focus exclusively on a few powerful trading concepts. This article summarizes what is important to me now. People day trade for many reasons, two of which are especially important to me.
However, system trading can be difficult to implement in practice because it typically requires you to take all of the valid signals produced by your system in order to allow the system's edge to manifest itself. This is because it may take a considerable amount of trades in order to turn a profit with a mechanical method. As a result, your system will often produce entry signals that run contrary to what your common sense is telling you. For instance, the current trading day may be a very strong bullish trending day without any signs of selling; however, if your system produces a valid short signal, then you must take the signal without question in order to allow the edge to manifest under a system trading approach. Or, if you are in a trade and prices come very close to your profit target and suddenly reverses back toward your entry, you must stay in the trade if your system trading rules require you to do so, even if you believe strongly that the trade is failing. This type of trading is very hard on the emotions because it often requires you to make decisions that go against logic.
Discretionary trading, on the other hand, entails identifying when to enter and exit a trade based on whether you cognitively or intuitively perceive that a profitable trade opportunity exists. In essence. you are assimilating various mental processes of perception and judgment to determine whether you should either take a position or remain on the sidelines. Although discretionary traders also use rules for entering and exiting a trade, usually discretionary rules do not meet the objective and mechanical test. Typically, discretionary rules cannot be completely programmed for computerized instruction. An example of discretionary trading would be deciphering the sequence of trades occurring at the ask versus trades occurring at the bid on time and sales in order to determine whether a trade opportunity exists.
Suitable markets often have another advantage. Their periods of volatility frequently occur at specific times, typically short periods near the open and close of trading sessions. For example, I can usually enter my daily trade during the first thirty minutes of the trading session. An early entry is especially good if the exit strategy can be automated. I can set up an OCO (one cancels other) group to implement my exit strategy without having to monitor the market after the trade is entered. Thus, after watching the market for up to 30 minutes to find an appropriate trade entry, I can set up the OCO group and just leave the trade to work. As I live in Australia and trade at night, this means I can go back to bed! Finding the right entry is the great challenge, especially in the fast moving period as a market opens. The trader hasn't got a lot of information to go on at this stage. I've generally found technical indicators to be worse than useless at this time, because they react to price changes too slowly.
The main disadvantage of discretionary trading is the inconsistent results this style of trading can potentially produce. Markets are constantly changing, and the circumstances and factors which may have led to you placing a winning trade yesterday, may not be the same as they are today. A lot of the success of discretionary traders can be attributed to their ability to perceive trade opportunity. However, what may be perceived as the same setup that occurred in the past, may in fact be an entirely different setup upon a more thorough analysis. As humans, we are susceptible to biases that allow us to equally treat all market situations simply because they look similar to past situations. Looks can be deceiving when it comes to market analysis and one must perform careful due diligence to make sure that they are comparing apples to apples.
Once you know all these you can discover how to trade for yourself and not to rely on others. Remember, Forex day trading system is not only very glitzy and glamorous on the surface but it also is very financially rewarding.
However, system trading can be difficult to implement in practice because it typically requires you to take all of the valid signals produced by your system in order to allow the system's edge to manifest itself. This is because it may take a considerable amount of trades in order to turn a profit with a mechanical method. As a result, your system will often produce entry signals that run contrary to what your common sense is telling you. For instance, the current trading day may be a very strong bullish trending day without any signs of selling; however, if your system produces a valid short signal, then you must take the signal without question in order to allow the edge to manifest under a system trading approach. Or, if you are in a trade and prices come very close to your profit target and suddenly reverses back toward your entry, you must stay in the trade if your system trading rules require you to do so, even if you believe strongly that the trade is failing. This type of trading is very hard on the emotions because it often requires you to make decisions that go against logic.
Discretionary trading, on the other hand, entails identifying when to enter and exit a trade based on whether you cognitively or intuitively perceive that a profitable trade opportunity exists. In essence. you are assimilating various mental processes of perception and judgment to determine whether you should either take a position or remain on the sidelines. Although discretionary traders also use rules for entering and exiting a trade, usually discretionary rules do not meet the objective and mechanical test. Typically, discretionary rules cannot be completely programmed for computerized instruction. An example of discretionary trading would be deciphering the sequence of trades occurring at the ask versus trades occurring at the bid on time and sales in order to determine whether a trade opportunity exists.
Suitable markets often have another advantage. Their periods of volatility frequently occur at specific times, typically short periods near the open and close of trading sessions. For example, I can usually enter my daily trade during the first thirty minutes of the trading session. An early entry is especially good if the exit strategy can be automated. I can set up an OCO (one cancels other) group to implement my exit strategy without having to monitor the market after the trade is entered. Thus, after watching the market for up to 30 minutes to find an appropriate trade entry, I can set up the OCO group and just leave the trade to work. As I live in Australia and trade at night, this means I can go back to bed! Finding the right entry is the great challenge, especially in the fast moving period as a market opens. The trader hasn't got a lot of information to go on at this stage. I've generally found technical indicators to be worse than useless at this time, because they react to price changes too slowly.
The main disadvantage of discretionary trading is the inconsistent results this style of trading can potentially produce. Markets are constantly changing, and the circumstances and factors which may have led to you placing a winning trade yesterday, may not be the same as they are today. A lot of the success of discretionary traders can be attributed to their ability to perceive trade opportunity. However, what may be perceived as the same setup that occurred in the past, may in fact be an entirely different setup upon a more thorough analysis. As humans, we are susceptible to biases that allow us to equally treat all market situations simply because they look similar to past situations. Looks can be deceiving when it comes to market analysis and one must perform careful due diligence to make sure that they are comparing apples to apples.
Once you know all these you can discover how to trade for yourself and not to rely on others. Remember, Forex day trading system is not only very glitzy and glamorous on the surface but it also is very financially rewarding.
About the Author:
Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Tactics To Improve Your Personal Finance Management You have full permission to reprint this article provided this box is kept unchanged.
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