Forex Trader Safety Checklist
A Forex trader just starting out can easily be tempted! What appears to be a great setup can very soon turn into a disaster. Forex traders the world over can probably identify with this experience:
Price has been in a consolidation channel for one or two hours.
You enter a limit order so when price hits the top of the channel your trade gets filled.
Within a few minutes your trade is in and within a few minutes more you are looking at a loss of -10 pips, then -15 pips, and then your stop gets taken out.
It's ironic isn't it? Price was static almost for hours. Yet the minute your trade is entered price moves right against your position and you get stopped out. All you can do is scratch your head and exclaim: "What happened?"
In the early stages of gaining trading experience, it is good for the novice Forex trader to go by a checklist every time before entering a trade until certain habits become ingrained.
Just having a procedure in place that has to be executed before pulling the trigger on a trade can prevent the Forex trader from quickly entering a trade just because there are some sudden movements on the screen and the trader is worried about missing an opportunity.
It's true that having to go through a checklist may delay entering a trade so that the price moves on before we have chance to submit our order. However, the number of times this happens is quite rare whereas the benefits of waiting far outweigh the missed opportunity.
For a very cautious approach to trading the newer Forex trader can use this Safetrading Checklist to determine whether the potential trade setup is likely to be high probability or low probability.
Safetrading Checklist
Avoid Going Long If:
MACD on either the 4 hour, 1 hour or 15 minute time frames are showing negative divergence.
The 4 hour and 1 hour charts show MACD pointing down.
Price is well above the daily central pivot point.
Price is below the 200 EMA (Exponential Moving Average) on the 4 hour and 1 hour chart but above the 200 EMA on the 15 minute chart. (With this setup on the 3 times frames price is bucking the overall trend and can turn against you at any time.)
Price is above a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
Your stop is not below multiple layers of support such as a significant previous high or low, pivot point, or Fibonacci level.
Avoid Going Short If:
There is positive divergence on MACD on the 4 hour, 1 hour, or 15 minute chart.
MACD on the 4 hour or 1 hour chart is pointing up.
Price is well below the Central Pivot Point for the day.
Price is bucking the trend on the 4 hour, 1 hour, and 15 minute time frames. (You can ascertain this by plotting a 200 EMA on these three charts and seeing if price is above it on the 4 hour and 1 hour but below it on the 15 minute.)
Price is below a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
Your stop is not above multiple layers of resistance such as a significant previous high or low, pivot point, or Fibonacci level.
The Greatest Lesson Of All
Using a Safetrading Checklist list in this manner might mean you take fewer trades. However, the Forex trader hereby learns a very important lesson. What? PATIENCE! A Forex trader might find that simply waiting for the high probability trade to setup does take a lot of mental and emotional energy.
When it comes to the learning curve, this is probably one of the most important skills the Forex trader will have to master. A Safetrading Checklist forces the trader to just slow down and give careful thought and consideration to the array of indicators presenting a flow of information. Once the new Forex trader gets to this stage, real progress can start to be made. - 23167
Price has been in a consolidation channel for one or two hours.
You enter a limit order so when price hits the top of the channel your trade gets filled.
Within a few minutes your trade is in and within a few minutes more you are looking at a loss of -10 pips, then -15 pips, and then your stop gets taken out.
It's ironic isn't it? Price was static almost for hours. Yet the minute your trade is entered price moves right against your position and you get stopped out. All you can do is scratch your head and exclaim: "What happened?"
In the early stages of gaining trading experience, it is good for the novice Forex trader to go by a checklist every time before entering a trade until certain habits become ingrained.
Just having a procedure in place that has to be executed before pulling the trigger on a trade can prevent the Forex trader from quickly entering a trade just because there are some sudden movements on the screen and the trader is worried about missing an opportunity.
It's true that having to go through a checklist may delay entering a trade so that the price moves on before we have chance to submit our order. However, the number of times this happens is quite rare whereas the benefits of waiting far outweigh the missed opportunity.
For a very cautious approach to trading the newer Forex trader can use this Safetrading Checklist to determine whether the potential trade setup is likely to be high probability or low probability.
Safetrading Checklist
Avoid Going Long If:
MACD on either the 4 hour, 1 hour or 15 minute time frames are showing negative divergence.
The 4 hour and 1 hour charts show MACD pointing down.
Price is well above the daily central pivot point.
Price is below the 200 EMA (Exponential Moving Average) on the 4 hour and 1 hour chart but above the 200 EMA on the 15 minute chart. (With this setup on the 3 times frames price is bucking the overall trend and can turn against you at any time.)
Price is above a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
Your stop is not below multiple layers of support such as a significant previous high or low, pivot point, or Fibonacci level.
Avoid Going Short If:
There is positive divergence on MACD on the 4 hour, 1 hour, or 15 minute chart.
MACD on the 4 hour or 1 hour chart is pointing up.
Price is well below the Central Pivot Point for the day.
Price is bucking the trend on the 4 hour, 1 hour, and 15 minute time frames. (You can ascertain this by plotting a 200 EMA on these three charts and seeing if price is above it on the 4 hour and 1 hour but below it on the 15 minute.)
Price is below a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
Your stop is not above multiple layers of resistance such as a significant previous high or low, pivot point, or Fibonacci level.
The Greatest Lesson Of All
Using a Safetrading Checklist list in this manner might mean you take fewer trades. However, the Forex trader hereby learns a very important lesson. What? PATIENCE! A Forex trader might find that simply waiting for the high probability trade to setup does take a lot of mental and emotional energy.
When it comes to the learning curve, this is probably one of the most important skills the Forex trader will have to master. A Safetrading Checklist forces the trader to just slow down and give careful thought and consideration to the array of indicators presenting a flow of information. Once the new Forex trader gets to this stage, real progress can start to be made. - 23167
About the Author:
Learn how to use the MACD Signal for safe trading. Click here: MACD Signal Know your candles! Use the free Candlestick Pattern Instant Recognition Library here: Candlestick Pattern
posted by X - Men @ 3:50 AM
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