Forex Trading Methods – Finding the right one – part 4

End of day trading: In my last articles, I shared that for any Forex trading method to be considered, it must be first, a complete method (Forex Trading Methods – Finding the right one – part 3 ); second, it must teach specific risk management rules; and third, it should be based on technical analysis, without being 100% mechanical or automated. The last step in determining whether a forex trading method should be considered, is the amount of time it requires a forex trader to implement it on a daily basis.

The dirty secret in the Forex markets is that most people OVERTRADE. This happens because forex traders are widely taught that the only way to succeed in the markets is to Day trade. The dirty ‘secret’ is that if a forex trader can’t make money trading forex on an end-of-day basis, the forex trader is unlikely to be any more successful day trading forex.

In fact, growth among retail forex traders is accelerating — these are people who currently have ‘day’ jobs. There is no likelihood that these traders have the time to watch the forex markets 24 hours a day. What happens if the traders fall asleep and miss putting in a protective stop order? Or miss an entry point?

I advocate trading forex on an end of day basis to eliminate the stress and time pressure to make instant decisions on order entry, immediate placement of stop orders, and constant ‘watching’ of the markets.

Combined with utilizing technical indicators, end of day trading allows forex traders to spend more time looking at the ‘big picture’ — is there really a trend? Is my method ‘right’? Are my numbers and calculations correct? And, they can do so in the quieter trading hours following the New York close (5:00pm Eastern Time).

Here’s a brief example:

Using a recent chart of the EUR/USD pair, from March 2009, shows a strong move from the 1.2600 range to 1.3000 — a 400 pip gain, which took about 7 days to complete and should have been captured by a good end of day trading method. However, that same chart shows more extreme fluctuations as the price ranged sideways in a 200 pip channel — if a forex trader is trying to day trade in that channel, the trader can quickly find themselves on the wrong side of a trade in more extreme short term volatility.

Forex traders who do not have the time to commit to managing their trades and monitoring the markets are precisely the traders for whom an end-of-day forex trading method based on technical analysis is best suited.

That concludes this four part series. Next time we’ll start looking at some more basics of Forex Trading

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