Article Summary: When you combine the three characteristics of Pattern Recognition, Patience, and a Probable Mindset you will find yourself thinking like a successful trader. You will also take the stress out of trading which alone will make the process more enjoyable.
As the New Year comes around, many traders start to think about how they can improve their trading in 2013. Newer traders start to think about which characteristics they can develop to grow themselves as a trader in 2013. Take heart, as growing your trading business comes down to a few behaviors that any trader can develop once they are recognized.
Most aspects of trading well will fit into the categories discussed today. You will also be introduced to a few indicators you can use to help you develop these behaviors consistently. Without further ado, here are the three aspects that you should focus on.
Chart Pattern Recognition
Pattern recognition is broad in nature. It encompasses the science of Technical Analysis and more specifically, the style of trading you are most comfortable with. The key is to find the strategy that fits your personality and focus on recognizing those patterns alone.
Chances are you will not trade well if you’re not inclined to the personality traits that complement your style of trading. You can leave the other trading styles that don’t mesh with your personality to the masses. You only need to find and master your niche in the trading world.
Many traders, love following trends. They will hang their hat on a moving average crossover strategy, the Ichimoku or DMI with ADX indicator to ride out the long moves that are famous in currency trading.
Other traders would rather trade ranges. We found range trading was one of the most profitable and highest probability strategies during the Asian Session in our Traits of Successful Traders Series. When trading ranges, traders look at all time frames for strong levels of support and resistance and tie those levels to an oscillator like the Commodity Channel Index (CCI) or envelopes to find overbought or oversold conditions in the range. Because of support & resistance levels, many traders enjoy well defined exits on the losing and wining side of the trade.
Lastly, many traders come to the 24 hour Forex Market because they are quick minded and want to employ a short-term trading strategy. They don’t care what price did last week, month, or year. They’re here today’s volatility. They’ll often employ a short term range or breakout strategy within one of three daily sessions in the Forex Market.
Either way,you should learn to identify and trade the patterns that match your personality.
Patience is the hall-mark of a seasoned trader. Just like a sailboat must wait for the wind to come before it moves, traders should wait for the market to set up according to their pattern recognition before they get in a trade. You cannot force the market to move any more than a boat can entice the wind.
You’ll often see newer traders jump into any trade that even looks like signal in fear of missing out on the next big move. Experienced traders often do not fear missing out on a trade as they know another trade will always be around and today’s trend will either reverse or offer new entry opportunities when price pulls back in line with the trend line.
Whether you are trading trends or waiting for the right set up to trade ranges, patience is a must. Patience will allow you to wait and enter on the set up with the best risk: reward set up or at least a more favorable one. Naturally, patience plays off pattern recognition.
Once you recognize the pattern you must be patient enough to wait for the set up to play out. Many traders enter too early because they’re trying to anticipate what the market will do next. This is often futile because every day in the market is different from the day before as new traders come in and out with different expectations each.
Learn Forex: Ichimoku’s Cloud allows you to visualize the support or resistance of a trend
(Created by Tyler Yell)
One of the least understood indicators is most helpful to instill patience into the trader. That indicator is the Ichimoku or “One-Glance” indicator with many lines and a cloud on the chart. The Cloud acts as a trend filter so that when price is above the cloud you stay long or if price is below the cloud, you stay short and ride out the trend.
To think in terms of probability is to be an advanced trader. When you think and trade in terms of probability and with proper trade size, emotion rarely if ever gets the best of you. Because the market is always moving and always offering trading opportunities, the key is to focus on and think in terms of high probability entries while relying on your risk : reward ratio. Let’s unpack that statement.
Newer traders often use the current trade to be the determinant of their emotion and their worth of their trading. Weathered traders know that this trade is but one of thousands in their career. The lesson here is that one trade can break you much faster than it can make you.
How can you remedy this if you feel too much emotion on today’s trade? Reduce your trade size and think like a mechanical trading system. Mechanical trading is rule and probability based trading and is never upset at performance but always objective in analyzing performance.
These may seem like advanced topics in trading but they can and should be adopted and applied by new and experienced traders alike. When you focus on the patterns that match your personality while waiting patiently for patterns to set up before trading with a mechanical mindset, you’ll likely enjoy your trading more while being more effective.
Next: The ABC's of Risk Management (6 of 50)
---Written by Tyler Yell, Trading Instructor
To contact Tyler, email tyell@DailyFX.com.
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