How I trade (Part 1)

Throughout the years, I received numerous questions about what strategies I use, what charting setups I prefer, what I look at before entering/exiting a trade and so on. As many of you who are regular readers know, I am sharing some of my trading actions on regular basis. However, I guess it’s pretty obvious that I don’t share all of them and the reasons are many.

Just to be clear from the beginning, I’ve been into FX trading since 8 years ago, I’ve seen a lot of it – traders come and traders go – and I am only talking from my own experience here.
This article series is not about what you should do and how you should trade, but about how I do it: no Holy Grail, no quit your job & get rich,  no big fish or How I made my 1st million: buy my book now! kind of stories.
What works for some, does not work for all and vice-versa :)

Time frames

During my first years of trading, back in 2003 to 2006 or so, the market was calmer and retail FX was a less crowded place. Now it’s about to become mainstream or will be completely banned (hint: see Dodd–Frank reform on retail metals trading) before your neighbor’s grandmother will start asking your opinion on the next Interest Rate Hike.

Ok, so when I was also very excited about the new toy, I also had more time to stare at the charts. I couldn’t imagine taking trades based off a daily or weekly chart, using stop-loss orders larger than 20-40 pips. Not sure if it was beginner’s luck,  a joyful combo of random coincidences or skill, but intraday trading worked well for me. Now it doesn’t. Therefore, I rarely check any chart on a time frame lower than 1h and all my trades are based off 4hrs, daily and weekly charts.

What I think now about intraday movements? – there’s way too much market noise; high leverage & 20-30 pip stops? – a beginner’s certain account wipe within 6 months of live trading.

Bigger is Better
Bigger is Better

Maybe it sounds a bit funny but my best trading days were during my World of Warcraft addiction of 1 year. That was when I switched from the intraday emotional roller coaster to swing / short-term trading. The darned game was keeping me busy for over 6 hours a day and over 12 a day during the weekends. I hardly had time to keep my eyes on the chart, therefore I ended up holding trades for over 2 days. The result: less stress, no more roller coasters, catching larger movements – sometimes full trends, more time to play WoW at the price of having no social life. Once getting a taste of achievable large targets, it was hard to get back into 5 – 15 min. candlesticks and tiny stops.

I always suggest new traders to consider larger time frames for their own good, especially if they are constantly losing in intraday trading, and their most common answer is: “but I can’t use large stops!” – yes, you can! trade smaller positions and using a 100-pip stop you can lose the same amount of money as if you’d use a 20-pip stop. “Ok, but my broker doesn’t allow me to trade smaller positions” – then change your broker – problem solved.

News & fundamentals

There are only a few economic events that I regularly focus on: interest rates decisions, employment indicators and Central bankers’ speeches. I use to check the Economic Calendar each morning just to make sure I’m aware of what’s coming up in the next trading sessions and when to get online, if possible, to see the market reaction. I try to avoid making decisions based on own beliefs and news interpretations, but also try to avoid making decisions based on what analysts suggest. I don’t follow many economic & financial sites and usually share good articles when I come across them – they’re in the Links Section. Trading the news live? scalping some pips during the NFP Release? …not for me.

Breaking News
Breaking News

There are too many economic indicators and events, from all around the world, to take into consideration when analyzing what’s causing the market to move. Hence I prefer to follow the market and focus on timing the entries / exits, being more concerned about “where is it going?” than “why it is going?”

When it comes to news sources, Twitter is one of the best tools available today, so Twitter is all I need to get the news (almost) in real time. If you are not familiar to it, I recommend you to try it out. Here is a blog post about some useful resources, including Twitter and a list of users to follow.

Technical levels: Support and Resistance

Support and resistance levels are very important and most of entries, stops and targets are based on key S/R levels. Here’s what I use:

- horizontal lines around previous/historical highs or lows: the more reversal action around same levels, the better
- round numbers: 1.4121, 1.3946, 1.4322 mean nothing to me. I only care about the round values – especially big figures (X.Y00 such as 1.4100, 1.4200 etc)
- diagonal trendlines resulting from connecting series of highs or lows: they look nice, especially in Technical Analysis books :)
- moving averages: as you can see in most of my charts, there are 3 lines below or above price. Many readers asked me what settings I’m using for Bollinger Bands. Well, those 3 lines are not BB. I am using 3 Exponential Moving Averages (Period 15) applied to Low, High and Open. They use to provide a decent support layer, but I wouldn’t bet my house on it when it gets tested. They are also quite useful in trend following.

I don’t use pivot points or stuff derived from standard pivot points, such as Camarilla, DeMark, Woodie etc.

Fibonacci Ratios

I pay attention only to 50% and 62% retracement values, especially the 50% one. Depending on distance between the two – if not too large, I look to use it entirely as a support/resistance zone. Why the 50%? Because anyone, trader or not, knows what “half the price” is. Many times it acts as a psychological barrier. Combining it with other support/resistance levels such as those described above, it becomes more meaningful.
Fibonacci extensions, arcs,  fans, time-zones: I don’t use them.

Fibonacci Retracement Eexample
Fibonacci Retracement Example

Trend

I don’t use trend indicators and I don’t need a fancy tool to figure out where’s the wind blowing from. If price starts in lower-left corner and goes to higher-right corner, forming series of higher highs and higher lows, it’s obvious that the trend is up. I will not insist on this topic.

This is all for now, but I will continue this soon, because I have many things to share. I already know what to talk about in the next posts (i.e.: entries, exits, risk-reward, favorite pairs/crosses, tools etc), but don’t hesitate to suggest topics and post your comments.

Cheers!

Update: Check the next article in series: Breakout Trading

16 thoughts on “How I trade (Part 1)

    1. liviu Post author

      Hi buddy. In the last few weeks, since getting back from my summer holiday I've been quite busy with other things so I only had a few set & forget trades. Last ones were losers as I've been constantly selling EURUSD on expectation that it will break 1.41 :)
      Anyway, I can't say I'm too confident on switching side now and buy it, so I rather look elsewhere

      Reply
      1. bgin2end

        Ahhh, glad to see someone else on the bear side of E/U – I have been selling into this rise and am almost to my pain threshold. We shall see…

        Reply
      2. adede

        CAN U PLEASE TEACH ME THIS UR TRADING PATTERN OR SEND ME SOME RELIABLE INDICATORS AND ITS PARAMETERS?EMAILadede_godfrey@yahoo.com

        Reply
  1. Roslan D.

    You are amazing! This is so true!!! I like the way you think and trade on FOREX. by the way I play Starcraft during the day, because other way i will go crazy watching all these charts.

    Reply
  2. sheraad

    Hi Liviu, once again you’ve outdone youself. Give back is not what everybody does, keep up the good work.

    Can’t wait for the next chapter.

    Reply
  3. liviu Post author

    thanks guys for the feedback, I'll continue in the next days. No fishing this weekend, so I'll have more time to focus on writing

    Reply
  4. Joseph

    I like this:

    “Ok, but my broker doesn’t allow me to trade smaller positions” – then change your broker – problem solved.

    Less leverage sometimes means more power, because you can withstand storms and hurricanes in a minute-scale. :)

    Looking forward to your Part2!

    Reply
  5. Pingback: Breakout Trading | innerfx.com

  6. fundamental lover

    Good Article
    Nowadays to trading are very easy and does not need a big money to start, just a few dolar you can star your trading. Thats why a lot of people accidently become a trader. In my opinion this people ussualy using scalper technic with just 5-10 pips and then make a take profit, but if they loss they can hold their position until a couple off day and their floating maybe 1000+++ pips LOL, :p

    Reply
  7. kbforex

    Hi Liviu,
    was just wondering when are u goin to write the (part 2) of how i trade article ?
    you also made mention of very important topics like entries, exits, risk-reward, favorite pairs/crosses, tools
    thanks and God bless

    Reply
  8. kcchan551

    trading (part one ) is an very article.I am looking forward to second one.
    But after such a long time it has not been published yet. Hope to have it SOON.

    Reply

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