Hi Traders!! Omar Eltoukhy here.

I hope you have enjoyed the gold, oil, ftse and other non forex pre-market outlooks I have provided recently.

I have tried to give you an exact glimpse of how we prepare to do battle every single day during the week.

There are going to be more of them in coming weeks so don’t miss the outlooks, and start to get a feel for how these markets move!

As I mentioned before, I wanted to take everyone on a voyage outside of the world of forex.  

I have alerted you that trading markets such as indices and oil is a completely different ballgame in some respects than what you have worked so hard to learn in forex.  It is these differences I have discovered that make the other markets both difficult but potentially rewarding if done correctly. Before we go any further, please understand that the methods I use are NOT the only way to trade indices or oil, BUT they are good methods that have consistently worked which is why I am writing this article to share with you.

Be careful letting what you learn today seep back into forex either, and conversely throwing away what I am about to say and simply applying what you have learned about forex simply because it’s what you’re already doing and comfortable with might be detrimental to your account, demo or live.

Below are some of the approaches I use to make sure that I don’t get burned by Stock Market and Oil trading. As they tend to be able to move very quickly in both directions in a very short amount of time, I have opted away from the longer-term trading to the style that I employ for the indices, oil and even gold. I have found it is useful to do the following:

1. Day Trade instead of Position Trading:  Your trading day begins and ends within 8 hours or so, and you DO NOT hold positions beyond market close.  This refers to any stock market while it is open and the hours of peak volume for the oil markets (2 hours after London open through NY oil market close).  We close all trades before low volume periods because there can be dramatic gaps or zero movement.  Plus, rollover cost on oil for holding the position “overnight” can be very steep.  I have seen crude gap 300+ pips from one day to the next.  If you were holding a trade on the wrong side of that, even with a “smart stop”, it wouldn’t matter and you would eat the full difference of the loss, even if that drained your account.  We don’t rely on multi-day moves for trading indices and oil, but rather make our money quickly and get out.
2. Analyze High, Trade Low:  We are not abandoning higher timeframes altogether.  We are just not taking trades from them.  To understand the overall structure of a stock market, trend, etc… it is wise to still look at the daily, 4hr and even weekly or monthly charts.  BUT, we DO NOT take trades from any chart above a 1 hour chart, and even can look for entries down to 5 minutes.  The goal is to capture a good move at the right time, when the market is moving.  It is important to understand where those points are from higher time-frames, but we cannot wait sometimes for a 4hr candle or a daily candle to close because we might miss what we are really aiming for during that period of time.

1. Momentum Matters:  Because these markets can move so far, so fast, one must catch the move not only at the right place, but at the right time too.  Simply placing forward orders at important S/R is NOT an option.  We must identify where price is likely to turn, or breakthough, THEN wait for it to fulfill our requirements.  This allows one to use a reasonable stop, which allows a larger order size for the same risk %, and doesn’t take as big of a win to ensure a positive Reward/Risk ratio.
2. Don’t Get Greedy:  We are not trying to catch the “whole move”, only enough of the move to give us a juicy R/R compared to our stop and get out.  Because we can look for new trades on the same instrument every day OR even multiple times in the same day, we just need to shoot for a reasonable distance based on places that are likely to stop price action, that equate to more than 1.5X our stop loss.  Many times if you continue to hold your order, you will watch your entire profit evaporate.  I have seen DAX trades go 150 or more pips in profit, only to hit b/e the next hour because I tried to “squeeze just a little more out of it”.  Considering that I use an average of 35-50 pips for stop, I have learned to be VERY happy with making 2-3X my stop now.  If it is not that much to the next major S/R, we skip the trade.
3. Big Breakout Pushes Patience (DON’T CHASE):  It is intense to watch an index or oil burst out of the gate and go for 200 or more pips in a single hour.  That will naturally make you want to get into the trade, or make you feel like you missed “the move” and give up on that instrument for the day.  I have learned that a big breakout should get you excited, but not to trade right away.  Many times, it is the secondary moves after a good pullback that are the REAL “moves”.  By being patient in your approach and not chasing after any instrument after it darts through or away from the important S/R you were watching, but rather waiting for it to come back to that area and then give a better signal, you will likely reap the rewards more often than getting burned by a strong retrace.
4. Know Thy Session:  You must learn EACH instrument and how it operates during various parts of the day.  For example, know when the FTSE really gets cooking and when it slows down.  The same for the US markets, the DAX, etc…  By having a gameplan before EACH major session starts (yes, even the Asian session with the Nikkei, Aus200 and even gold), you will spend less time being surprised by the moves and ready to strike when things come into your target zone.  This will also help you avoid bad trades around news since you know what is likely to be affected before it comes.  By preparing yourself for each and every major session you will be better equipped to trade instruments that can hurt the ill-prepared.

Next week we will discuss the two most important components of a system designed to trade instruments like the Indices, Oil and Gold. 

regards

Omar Eltoukhy

The Right Mind For Extra-Forex Affairs