Forex Nous

Forex trading maxims

Basic forex trading maxims

When we talk forex here, we are talking about trading currency markets, for a consistent profit over the long term, and for an income in the short term. Our dynamic maxims are: preserve capital; restrict losses and maximize gains.

To achieve the first maxim, preserve capital, two rules are required

• Set a maximum desired exposure at any given time. This can be anywhere between 0.1% and 2% of the total trading assets under management (AUM).
• Set a maximum daily drawdown before trading must be quit for the rest of the day. This should be no more than 2% of the AUM.

To achieve the second and third maxims, restrict losses and maximize gains, the following rules are required:

• Never trade less than 1:2.5 risk to reward, except when confident that trading two units is appropriate and closing the first at 1:2.5 and letting the rest run with a stop at break even
• Use a trailing stop based on swings on the nearest lower time frame to the trade entry

In every way moving forwards, none of these rules shall be broken.

Trading strategies and rules

Integrated Cycle Analysis

We coin the term integrated cycle analysis (ICA) to cover the following elements:

(i) Fundamental analysis of the two currencies being traded, including but not limited to: interest rates and differential; macroeconomic and political fundamentals – GDP, consumer confidence, sectoral indicators such as construction and retail sales figures, unemployment/employment indicators, business confidence indications, political economy, monetary policy meetings of the central bank, fiscal policy decisions of the government, industrial production numbers, statements of politicians and important businesspeople.

Weight will be given to the most recent outcomes for the announced numbers for each currency to give a fundamental direction in terms of possible revaluation behind time, i.e. on the assumption that this information is being adjusted into the price dynamically, rather than instantly as per efficient markets hypothesis.

(ii) Technical analysis forecasting according to multiple timeframe:

(1) Elliott and Wolfe Wave identification
(2) Pitchfork analysis
(3) Fibonacci price and time analysis
(4) Jensen circles
(5) Gann analysis
(6) Momentum indications

This blog is dedicated to the pursuit of a set of principles that together form a complete and concise method of approaching the forex market for trading purposes, by way of analyzing current opportunities available and taking a decision that is discernably high probability, according to the research conducted integrating the features of (i) and (ii) and their components.

Due to the very high levels of competition in trading the forex market, it is necessary to have a ‘take no prisoners’ approach. There must be ruthlessness around having the discipline to research the trade, and take the trade at the desired level, and to perform pre- and post- trade analysis.

Each of the fundamental and technical aspects of ICA need to be researched prior to taking a trade, and the trade should be position-sized only on the basis of a probability given the researched information.