Discretionary Trading: Knowing Your Various Setups

Filed under: Learn Forex Trading |

Screen shot 2013-04-03 at 10.17.22If you are a discretionary trade like me (as opposed to a system trader), then you probably have a number of different setups that you use – and it is important to know each of these setups inside out and to know which of them have a higher probability of success. Personally, I use about four different basic setups (namely the pin bar, inside bar, engulfing pattern, and breakouts – all at significant areas of support/resistance), although there are slight variations of these (such as the ‘last kiss’ – which I will cover tomorrow).  In order to know which of your setups are performing the best, it is important to make notes when you record all of your trades. For example, in an excel spreadsheet, you could record the date, pair, profit/loss, and type of trade for each trade that you do for later analysis.


Another thing that you could do is to backtest your strategies in software such as MT4 or Forex Tester (which I will also review sometime in the next few weeks). By doing this, you can get to know your strategies inside out, including the winning percentage of each strategy, and you can get a feeling for when trading conditions are right for each strategy.


Furthermore, if you find that one of your strategies is not performing well, or perhaps even carrying a loss on your account, you could cut this out from your trading arsenal altogether. Or, if a particular strategy has a lower winning percentage than another strategy, then you could perhaps risk less of your account on that strategy, and more on the ones that have a higher winning percentage. However, personally, I always risk 1% of my bank on each trade, as this is a good compromise (it’s not too conservative, and not too risky), and for me, trading is complicated enough without thinking about position sizes all of the time!

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