Conversation With A Struggling Trader

Today I received an email from one of my readers for advice on a trading strategy. It was a great question and I am going to answer it here on the blog so that everyone may benefit from this traders question.

He asked for advice on a trading strategy and so I am going to ask for trader participation in this one. If you have any trading tips that I missed. Please share them here and we will all become better traders.

This is what he posted:
I am a short term trader who use 5/10 EMA crossing, RSI, MACD and Stochastics as basis of my entry using 15mins chart.

The problem now is that:

(1) I do not know what exit rule to use because if i use the same entry parameter i would
have lost most or all the profits by the time i am exiting.

(2) I do not know what support and resistant to follow.

(3) At times i place a trade but it will knock off my stop loss of 30 pips and later continue
the direction which i actually predicted (especially GBP/USD).

(4) I do not know if there is any strategy that befits short term trades that will give like 40 –
50 pips.

First of all I am going answer that this strategy can be successful but I think you need to make some adjustments. I would recommend checking out trends and do not trade against a trend. What can happen is you get a large move and then a consolidation period and the averages may cross but then the trend will quickly continue and you will have losing trades.

I am going to answer this one question at a time.

(1) I do not know what exit rule to use because if i use the same entry parameter i would
have lost most or all the profits by the time i am exiting.

I have read that many strategies say to wait for the exit until the moving averages touch again this is actually crazy because you will lose all of your profits if you wait that long.

I think the 5 and 10 ema is too short because you get too many signals and that creates fakeouts. I use a 5, 21 EMA and 60 MVA and the 5 has to cross both the 21 and the 60 to get an entry. That way you know the move is more serious and you can still get some major moves.

What you should do to stay in trades is to plot support and resistance levels and use the next level as a target. Profitable traders have profit targets. You have to know before hand what you are looking for in profits. I always make sure my target is at least 55 pips. Another thing that might help is to trade during the busy trading times which is the first 2 1/2 hours of each market open.

The trading sessions are the Tokyo, London and New York. The reason for this is that is when the majority of traders are trading including the big central bankers and investors so that is when you will get your big moves and that will give you the ability to hit your profit targets.

(2) I do not know what support and resistant to follow.

What I go by is the last support level and the last resistance level that was had. Then go by the strongest level. What I mean by the strongest is the one that has held up the longest without being taken out.

I plot my support and resistance on a 4hr chart that makes the support and resistance easier to see because you can see what has happened farther back.

(3) At times i place a trade but it will knock off my stop loss of 30 pips and later continue
the direction which i actually predicted (especially GBP/USD).

This happens to everybody but here are two things to remember one is try to place your stop 5 to 7 pips above or below a previous support or resistance level. Also when trading the GBP/USD it is recommended to use 50 pip stop because the pair has a lot more price action. Remember to use good money management techniques.

(4) I do not know if there is any strategy that befits short term trades that will give like 40 –
50 pips.

When you are trading make sure that you have your profit target for at least 55 pips. When you get that profit you are doing good. If you don’t hit the target make sure that you move your stop behind the price so that you will still get some gains.

The charting software I use has a trading system that has a strategy built in to have a target of 55 pips per trade. That is where I learned the 55 pip rule.

Here is a video about moving averages.

*note from an early post
I also wanted to comment about the Bear flag from Tuesdays Post Patience is a Virtue in Forex Trading I mentioned that we might see a bear flag and then the bear flag did not take place as the Eur/Usd had a pullback.

I had mentioned in my last post that the bear flag did not materialize and I received a comment asking what I meant. Well the blue trend lines are the bear flag I explained earlier and you can learn more at chart patterns.com The bear flag usually indicates that the pair will move down. However it isn’t that important about what it usually indicates what is important is watching the price break out of the channel.

Ok, please comment and let me know if you have any questions.

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Casey Stubbs is the founder of Winners Edge Trading, which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets.

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