A Rule-based Swing Trading Method
“This reminds me
of the way many professionals trade. They are not looking to "shoot the
moon." They have set objectives and they exit when those objectives are
reached. Doing so takes discipline and self-control, two ingredients needed by
every trader who desires to become successful in this business.” – Joe Ross
It is possible for every trader to achieve her/his aims in
the markets (provided that their expectations are realistic) if they use the
right trading system with the right risk control. Many have made it in other
areas of human endeavors, but they still need to grapple with the markets. You
personal trading experience can be improved, however. The trading world is a
sphere of activity that requires excellent trading skills. Besides, and
seriously, speculation needs blatant approach to generate constant, decent
gains in any market type. This article will show you how you can use a trading
system to trade with an utmost determination, powerful approach and the correct
information.
The Underlying Market Actions
We have
often experienced long,
smooth upward pushes punctuated by violent pullbacks, brought about by some
fundamental events across the globe. Should this be a surprise to us? Not at
all, especially when we delve deeper into an aspect of the dynamics of the
markets. Market studies have revealed that that the seriousness of market
metamorphosis could be decided by the pressure on the market. During a serious
movement, pressure gains momentum with it. If the transaction pressure is
weighed relative to the market volatility, ‘elusive’ fact concerning the easy
moves of the instrument turns conspicuous. If the transaction pressure is
weighed relative to the market movement, more fact about the easy moves may be
derived. Intensifying moves in an equilibrium territory may portend a probably
exponential rise in price pressure. On the same weight, moves that become less
intensified may portend a counter-trend rise in pressure. It should have been
noted that expanding pressure brings with it a more colossal directional move.
Still, a speculator ought not to deprecate the seemingly refractory nature of
the financial markets. The most crucial issue to comprehend about the market
pressure is that it is not just the pressure itself the concerned analysts are
particular about. With any given market move a significantly erroneous notion
is thinking that there exists a bear for each bull, and therefore the market
pressure is ineffectual. If this were true, the markets would be caught in a
dangerously protracted consolidation. The markets are propelled by the avarice
and fright of the bulls and bears. Thus the transaction pressure and market
movements are factors that make us see the realities of price dynamics.
Consider buying/selling pressure as a lopsided attempt plus the market action
as the aftermath of the attempt. If bears are inclined to smooth their orders
at all cost there might be propensity to do so at the bid rather than sit back
at the offer. In case the purchasing need is scantily situated beneath the
price then the markets would be propelled towards the downside till the bears
get satisfied or not be inclined to go after market moves any further to the
downside. Alternatively, if bulls are inclined to act they may purchase the
offer and not sit on the bid. If bulls are more inclined and there is not much
resistance atop the price, the market may be seen moving up till the bulls are
satisfied or not be inclined to go after the markets to the upside.
How thankful we can be that helpful analysts have always given us
insights into the markets! They show us
how to be the best traders we can be and how to get the most out of our trading
activities. Money and risk management protect us from harmful and vain pursuits
in trading, they liberate us from the fear of uncertainties and leads us to
true peace of mind in the markets. They give meaning to our trading life and
proffer a marvelous goal of victory.
The Strategy Entries and Exits
It is imperative to stick to the rules of this trading
method. Most market speculators are speculating on a retail basis, if you do
not let your loss run, you would avoid surprises that have had adverse effect
on most traders’ portfolios (this is what has made some traders to quit
trading). You would need to do only what will benefit you in trading, and stop
doing what cannot pay you in the long run. According to Sam Seiden, the one thing Vegas does, however, that brings them
consistent riches is that they do not change their rules when they lose. They
know they are going to lose money every day but at the end of the day, they
almost always come out ahead with profits. They have a system that tilts the
odds in their favor so they know that all they have to do is stick to the plan
and they will profit. Imagine if they became emotional and changed the rules
each time they lost. If they did that, they would not enjoy the profits that
they do. If a system is abandoned, it will not be useful to the trader.
If it is not useful to the trader, it will not give any signals or generate
results.
As far as this method is concerned, small position sizing is
auspicious. For instance, you can formulate a trading technique that can be
used by others with 25% - 45% returns per annum with not more than 15%
roll-downs. Conversely, if you would handle a portfolio and be a kind of more
daring, you could increase your position sizing so that your proportional gains
can also increase; providing that you are comfortable with that and can remain
unperturbed during severe roll-downs. If
we are not willing to think about risk control, we may be surprised when a
trade goes negative. We simply need to keep on trading whenever a setup meets
our entry criteria. If we think about risk, then we can control a loss if it
comes. You do not need to do hedging with this
trading method. In an unpredictable market – a long trade loses, and later a
short trade loses, buy again, negativity/hedge the GBPUSD with 70-pip stop
each, only for the long position to be stopped out after the short position was
initially stopped out. From our own experience we know that with the right
tools, trading plan and the right system, we will probably fail without the
discipline to follow our plan. It is virtually impossible to become a
successful trader without it. Emotional battle that will take place in our head
when we are not disciplined is better imagined.
The Simple Moving Average (SMA)
and the Relative Strength Index (RSI) are for this strategy. Currency pairs and
crosses that tend to trend well have been chosen for this method. The
privilege to analyze the markets seriously for a long period of time enables us
to benefit from market movements in a unique way. The price movement will be so
conspicuous and familiar to us.
The article is ended by the quote below:
“One of the biggest mistakes traders make is trying to
force their trading system on to a market that is not moving in the expected
manner.” – Steve Ruffley
NB: This article was
originally written by Azeez Mustapha, and published in Futures Magazine. It is
reproduced here with permission from Futures Magazine. The quotes used here are
not part of the original article.
