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Trading password in the world of charts

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Guest profile:

Steve Miley is a Market Chartist and has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Academic Dean for The London School of Wealth Management, plus Senior Investment Advisor at Kylin Prime Capital.
As a Market Chartist, Steve has won many awards from the Technical Analyst Magazine. He was the 2016 & 2013 winner (plus 2014 runner up) of Best Independent Fixed Income Research & Strategy and winner of Best FX Research & Strategy in 2012. He was also a finalist in the Technical Analyst of the Year category each year for 2012-2017.

1. How do you use your technical analysis, that is, use charts to predict future price trends and determine the buying and selling levels?

Steve Miley:Views about technical analysis vary widely across the investor and trader world, with some believing the analysis of charts and price patterns is a worthless endeavour, whilst others believe it critical to any investing or trading strategy. Many misconceptions and falsehoods have, therefore, been formed with respect to charting, as technical analysis is also known. The key to using and benefiting from technical analysis, is via good education, understanding and application. This can then allow the investor or trader to utilise technical analysis to generate profits.
I use technical analysis to summarize the following elements:
(1)The reports date: Here you can scroll back through past reports, see how well we predicted the market previously, or for you to see how the view has shifted over time.
(2)The daily view: A red down arrow for a negative, bearish view for the day, a green up arrow for a positive, bullish view for the day.
(3)The chart: Displaying the technical analysis, the levels that are important for the day, what is momentum doing.
(4)The support and resistance levels: Support below the market when published, the red bears; resistance above the market when published, the green bulls. These are marked with between 0 and 3 stars to denote the importance of the level, the more stars the more significant the level as support or resistance.
(5)The commentary 1: The daily update, what has happened since the last report, what is the impact on the daily view, what are the directional risks for the day, with the levels to monitor.
(6)The commentary 2: The intermediate-term outlook. Where is the market directional bias for the next 1-2 weeks, what are the target levels and what changes this view.

2.You attach great importance to trading psychology. As traders, what emotional and behavioral influences and interferences should we try to avoid?

Steve Miley:Firstly, Unrealistic expectations. Many traders see Forex trading as a get-rich-quick scheme. Although there are a number of stories of traders who do make big profits in a short period, there are far more untold stories of traders who wipe out their accounts in a very small space of time. Many of these traders then chase their losses and lose more and more over time, in the hope of hitting a home run. Trying to achieve aggressive profits will likely see you risk too much and break money management rules. You are also more likely to move away from your strategy.
Solution: Have realistic expectations and goals. Stick to your money management rules and risk parameters. Stay true to your trading plan. Regard Forex trading as a long game like a marathon, not a sprint. Our section on Risk Management should be of help here.
Secondly:Lack of market awareness.Market dynamics change over time. And this can be a difficult concept for new traders to appreciate and react to, as by definition the beginner is short of experience. Sometimes, as markets change in their dynamics, it requires the trader to adapt too and maybe update their strategy. More volatile markets for example, may require changing risk parameters, stop and target placement.
Solution: This is a difficult problem for the new trader, as market awareness only really comes with experience. However, by educating yourself and taking a keen interest in what is currently impacting financial markets, it is possible to become market aware relatively quickly.
Thirdly: Indiscipline. Emotions can overtake the new Forex trader. The market saying is that “fear and greed drive markets”. These emotions, alongside other character traits such as impatience and over confidence, can often lead to a lack of discipline. In turn this can mean taking too much risk, or not correctly managing risk, which then will likely lead to making losses.
Solution: To avoid indiscipline, look to stick to your trading plan, monitor your emotions and try to avoid being led and influenced by them. See our section on the psychology of trading.
Finally: No strategy. Before your start trading, you should have developed a trading strategy and plan. If you do not have a plan for your trading, you are really just guessing, or gambling. By trading without any preparation, without a defined way of approaching markets, you are increasing the likelihood of losing your capital.
Solution: Build a strategy. And build this strategy by using a demo account. This way you can develop a successful approach before you commit funds. You can see more information on trading strategies here.

3.Do you think "risk management is the key to maximizing profits and minimizing losses", could you please talk about your understanding of risk management and how you manage and control transaction risks?

Steve Miley: The risk we usually refer to is mainly the transaction risk caused by market fluctuations. When participating in market transactions, volatility is inevitable, because fluctuations in the short and medium-term are natural price behaviors in the financial market.
How to manage these risks?
(1)Because markets tend by definition to move more violently with increased volatility, it is often necessary to widen out the placement of the stop-loss.
(2)In turn, with the wider stop loss placement, the potential initial target for a trade should also be larger. For most traders, a minimal Risk Reward Ratio would be 2:1, but in more volatile markets it should be possible to aim for a larger Risk Reward Ratio.
(3)Given that the stock-loss placement is going to be wider and we are looking for a potentially bigger target, the next logical step is to reduce the position size. If you decide to double your stop-loss distance, then it clearly follows that to risk the same amount would require halving your position size. This calculation and application is critical to avoiding large losses and to benefit from potentially larger profits.
(4)Adapt your trading strategy. You do not necessarily have to abandon your previously successful trading approach. But more volatile markets can sometimes deliver different price action, which may require adapting of entry points, stop-losses and target levels. You should also consider reviewing in-trade risk management processes and even the initial analysis and trade set ups.

4.For traders, how can they find a financial market that suits them so as to win profits?

Steve Miley:Clearly, it is almost impossible to answer this question. As individuals and traders, we are all very different and bring diverse experiences and differing personality traits to our trading. Here though are some tips that could help you on a more profitable path when deciding on which markets to trade.
(1)Trade what you know! We have said this already in this article, but when starting as a trader there is much to learn. Whether it be how the macroeconomic data of an economy impacts an asset class or in technical analysis how to draw a trend line, there is much education required, so to make things a little easier at first it is probably wise to start from trading an asset class that you have some knowledge of and are familiar with. For example, don’ t start off Government Bond trading if you have no idea what Government Bonds are. When you may already have some experience of the stock market, you can begin with stock transaction.
(2)Trade what you enjoy! It can be fun to profit from trading, but sometimes you will experience losses. It will be much easier to cope with the bad times if you actually enjoy learning about and researching the asset class you are trading. Trade what appeals to you, what you have an appetite to learn about and better understand.
(3) Become a Master of one! Although ultimately it would be great to be able to confidently trade every asset class equally well, this is probably not realistic even in the long run, let alone in the short-term when you are starting. Aim to become a Master in one asset class, concentrate all of your time an effort into gaining as much knowledge as possible on that asset class.

5.Many traders have suffered from transaction fraud, and some even suffered heavy losses. As a senior trader, how to detect and prevent transaction fraud?

Steve Miley: I have been in the industry for many years, and transaction fraud has occurred from time to time. This type of crime seems to show no signs of abating or disappearing. To prevent transaction fraud, you must understand some warnings and red flags that may exist.
First,The returns are “too good to be true”. Whether you are investing or trading, it should be a given that there are no guarantees for profits, that there is no “sure thing”, there are no sure fire, definite winners. The value of any trade or investment can go up and down. This is the very nature of all financial markets, the price move in swings.
Therefore, any investment “expert” who guarantees or promises you “failsafe” returns, or that it will “unfailingly” outpace the stock market, is probably a sham artist. A red flag should be waving for you! Positive returns on trades or investments can NEVER be guaranteed. Furthermore, anyone who is registered and regulated by any legitimate government regulator would never guarantee profit or gains.
Second,You are not the only one targeted. Usually, the fraudster will tell you that you were individually selected for the investing or trading opportunity. However, it comes to light that people you know have also been targeted with the same or similar opportunity. Or, maybe you come to a site like FX Explained, or do further research online and find that many others have been approached with the similar prospect. This is a key red flag!
Third,The opportunity is urgent and/ or game-changing. A regular scam approach is to tell you that the opportunity being offered is for now and now only. There is a short time interval before the opportunity expires and you need to act now! Any respected broker would want you to review any investment decision as long as you require. If there is a very short time period for you to decide, then this should be a significant warning sign.
When approached by a “broker” it may be wise to ask yourself, “why am I being chosen for this amazing opportunity?” Investments with potentially high returns that are maybe somewhat outside the norm, are not usually offered to the individual retail investor. They are mainly offered to high-net-worth individuals and institutional investors. As an individual that is “chosen”, a red flag should be raised. So, if someone approaches you along these lines, beware!
Watch for these red flags. We are all prone to making a bad investment or trading choice from time to time. A dishonest opportunity for investment is very different, however, as there may even never have been such an opportunity. Being aware of the above mentioned red flags will hopefully help you avoid being scammed.


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Short Comments

  • 和Steve的想法一樣,之前購買很多交易品種,後來之一歐美、鎊美兩種了,時間長了,盤感已經逐漸凸顯。

  • I have read his article, a very powerful person, and many of his views are worth learning.

  • 信號要分級別,否則有限的資金無法發揮最大的效應。Steve說的幾個點值得每一位交易者關注。

  • In transactions, everything that is "unbelievably good" often has fraud behind it.

  • 在我看来,一场成功的交易,交易心理占了90%的权重,它比技术和市场因素都要重要。一名成功的交易员首先是个情绪克制得当的人。

  • This article is great! Shared a lot of actual trading content, which is very rare.


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