SHORT ANSWER
If you’ve just joined T2W – welcome!
First things first, if you haven’t done so already, check out this Sticky: [FAQ]
I’m New to T2W – Where do I Start? That’s the starting point for ALL new members, regardless of your trading experience. It contains a list of 12 mini-FAQs which cover the basics about T2W - who’s who and what’s what etc. Once you’ve read it, you’ll have a good understanding of what a fantastic resource the site is, how to get the most from it and, hopefully, how best to contribute to it.
New to trading?
Okay, if you’re not only new to T2W, but also new to trading, then this is the FAQ for you. (If you happen to be a multi-millionaire fund manager, please read it anyway and tell us how we can improve it!) Trading is a very large subject and T2W is a very large website. You’re welcome to just follow your nose and see where it leads, or you may prefer to take a more structured route to accelerate your learning curve. If so, we have . . .
A simple 4 step plan
The Long Answer below provides a simple 4 step plan designed to give you a good insight into the world of the self taught and self funded trader working from home (known as a ‘retail’ trader). For new traders who don’t know where to start, this is the perfect introduction to the subject. Completing steps 1 to 3 will take around ten to twenty hours. At that point you will have enough information to be able to make an informed decision as to whether or not trading is for you.
100% guarantee
Yup, the 4 step plan comes with a rock solid guarantee. Once you’ve completed steps 1-3, one of two things will happen. Either you’ll be bored to tears by the whole subject or you’ll be unable to sleep at night because you’re just soooooo excited! If your rubbish bin is rapidly filling up with spent packets of Mogadon, then you’ll probably be ready to move on to step 4.
Use FXCM as your Broker and use their TradeStation charts.
A Simple Moving Average Trading System which I have used for many years.
SMA 3x13X39 = Profit
I want to address a question commonly asked by those who are computer phobic, techno confused and Internet allergic, "What is a good simple system to follow, to get in and out of markets?".
Most people are comfortable with the herd. Such good folk is most comfortable with a trend following system. I am ill at ease in a pack and downright anxious when everybody and his dog are comfortable saying the same thing. I am, therefore, drawn to oscillators to anticipate the end of popular perception. Oscillators also give an insight into the cyclical nature of markets. Being obsessed with market structure and somewhat compulsive in my quest for efficiency my ways are not 'comfortable' for many. So to get back to basics for those not able or willing to devote the time to market study that I do here is a way to handle your market study and trading decisions.
Remember the numbers 3 x 13 x 39 = Profit
Simple daily moving averages of 3,13 and 39 can keep you in and out of markets fairly efficiently and profitably, (in any time frame actually). I will show you how.
Some basic principles to hang on to are:
· The market moves in long (secular) trends which may last years, e.g. the present equity bull market dates from 1982.
· Intermediate trends lasting many months, even a couple of years or so.
· Short term trends lasting weeks or months.
· Trade intermediate trends in either direction.
· Trade short-term trends only in the direction of the intermediate trend.
Proxies:
· 3 Day MA - a proxy for price
· 13 Day MA - a proxy for the short term trend (a moving trend line)
· 39 Day MA - a proxy for the intermediate trend (a moving trend line)
· 40 weeks, 200 day MA - a proxy for the secular trend (a moving Trendline)
The Basics of MAs
MAs lag market reversals at tops and bottoms, the larger the MA the longer the lag period, the shorter the MA the shorter the lag but the more frequent the whipsaws. MAs work well when markets trend but get frequently whipsawed when they are in a range.
Therefore, trade trends with the MAs but do not trade ranges using MAs. Just stand aside and be patient until a new trend emerges.
The intermediate trend is in the direction of the 39 MA which acts like a moving trend line. If the 39 MA is pointing up then the intermediate trend is up, if down the trend is down. If the 39 MA is horizontal the market is in a range, from which a trend will, sooner or later, emerge.
Simple Trading Rules
1. When the 39 MA is moving up buy when the 3 MA crosses up over the 13 MA. and/or when the 3 MA crosses above the 39 MA. When the 13 MA crosses above the 39 MA consider adding to your long position. Exit and stand aside when the 3 crosses back below the 13 MA.
2. When the 39 MA is moving down sell short when the 3 MA crosses below the 13 MA. and/or when the 3 MA crosses below the 39 MA. When the 13 MA crosses below the 39 MA consider adding to your short position. Exit and stand aside when the 3 MA crosses back up over the 13 MA.
3. Only initiate trades in the opposite direction of the intermediate trend when the 3 MA crosses above or below the 39 MA, preferably after the 39 MA has already changed direction.
4. This 3:13 MA crossover will keep you trading in the trend with only a small lag and on the sidelines during corrections. The lag only becomes more substantial at reversals of the intermediate trend (a 3:39 crossover), a small price to pay at these uncertain times of trend transition.
Aids to Interpretation
· When the 3:13 crossovers occur at some distance from the 39 MA then you are 'likely' dealing with a short-term correction (even though it can be substantial) to the 39 MA.
· If the 3:13 & 39 MAs are close and converging before crossing over you are 'likely' dealing with an intermediate (or significant) correction of the trend or reversal.
· 'Likely' means probably not 'you can bet the farm on it' surety. There is no sure thing just as there is absolutely no free lunch.
