This is a combined tutorial and trade journal for "the holy grail" I think I've come into. I will post my trades as I close them (good, bad, and ugly). I've traded roughly 6 years and have consistently lost until just recently. During that time, I traded every EA indicator, and marketplace trading system known to man on lower timeframes with little success. In exasperation, I put up naked H4 charts, went back to what I consider "first principles" and found success. What I've found that seems to work, I will in general terms outline below. But first, there are some precepts the reader must accept that I've learned and come to strongly believe over years of hard experience. If you do not accept these, then move on; if you insist on continuing to trade a 5 minute chart obscured by 15 different indicators and choke on what I'm about to say, that's what makes a market. I'll be glad to eat you for lunch! ;-)
1) Trading in lower timeframes is a sucker play: Banks and funds don't do this. Why would you think you can outsmart them? Technical indicators tend to be much more failure-prone in lower timeframe charts. For these purposes, I define anything under a 4 hour bar as a lower timeframe. Typically banks and funds are going 8hr bars or longer. 4hrs is my favorite timeframe. I get lots of trades there.
2) Technical indicators are a tool used to confuse the gullible: They lag. They repaint. Moreover, I've never found a moving average, MACD or stochastic I can take home and eat. Why would any be preferable to plain old price?
3) For a successful trading method you need three things:
a) some sort of method to give you a solid statistical edge. if you can find something that will even give you 60% winners, you'll make a whole lot of money at this. you should be able to explain it to somebody who knows nothing in two or three sentences. otherwise, you have no idea what you're doing. if you think there's a method out there to give you 90% or 95% winners without exposing you to a reward:risk ratio that's totally unacceptable, I have a bridge to sell you as do most of those who hawk eas and indicators in the forex world. it's just not reality.
b) a solid reward:risk ratio on any trade you do take. if a trade doesn't give me at least 2:1 i'll generally pass. if you can find something that's 5:1 or 10:1, which isn't that uncommon, you should leap at the chance.
c) risk management. this is important to make sure you don't win 10 trades in a row only to lose it all on one horrendous loser. also, it makes your account equity much more stable. if you risk say 2% per trade, you'll be slowly building your account using the miracle of compound interest while making it pretty unlikely you'll be looking into the hole of rebuilding from a 25% loss.
That said, my trading method (paragraph a above) can be summed up as: "examining price action at support and resistance levels using japanese candlesticks and trading accordingly. my favorite supports and resistances are trendline breaks. i will never enter on a break, but rather wait for a retest.".
I risk 2% per trade, though I may go lower at iffy times.
I stay out when I have CB actions affecting one of the component currencies, avoid trading during NFP regardless.
I will not take a trade where the reward:risk is not at least 2:1.
And that's it. What follows will be a journal of my trades as I close them.