Chapter 16

A Simple System

Introduction

YOU ARE HERE—You now have mastered the mechanics of your trading platform and have set up a preliminary process for pre-trade, trade, and post-trade. I say preliminary because as you develop your trading method, all setups will need to be modified in accordance with what is specifically needed for it. You have selected one or two brokers and a trading platform to demo. You are ready to begin trading the demo account using a simple indicator battery method. This will get your feet wet and also aid in understanding how trading methods are developed.

Tip: Performance is not an issue here; learning is the focus.

Fundamentals almost certainly drive the long-term trends of currencies, but trading is a short-term affair. Most traders do not even hold a position from one eight-hour session to another. “If U.S. interest rates go up, then the USD will rise”—this is true in some cases, false in others. There are so many other factors determining currency prices that an accurate observation one time may be incorrect the next. Correlations, between them, almost certainly nonlinear, come and go without notice. But even if one knew a statement to be correct, how does that help a trader in the short term? Leverage is the name of the game, and few of us want a $10,000 loss while waiting for a fundamental factor to work.

Ergo, I strongly recommend the new trader develop a simple technical analysis toolbox to get started trading currencies. You may add to ...

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