ForexSpirit

One of the main reasons that I looked into news trading (apart from to see if it would complement my regular more long term trading approach) is a comment made by Richard McCall in his book ‘The Way of the Warrior-Trader’. Throughout the book McCall applies the wisdom of the ancient samurai way of life to trading in this day and age.

He takes the view that practice definitely makes perfect, whereby the samurai would endlessly practice their technique, sharpening their skills, so that when it came to a real fight, they would have honed their skills and technique to such a degree that it would become pure instinct. For the trader, that practice is done using a demo account, where they are able to put their trading plan to the test. Once the trader has developed deep-seated trust in their trading system, then and only then should they enter the real ‘fight’ and start trading money live.

If a samurai found themselves in a fight, it would generally be over very quickly; often after no more than three strikes of their sword. The fights were short, swift and brutal. The samurai required all their focus and concentration during these moments. This is where all their practice was being put to the test, and their lives depended on it.

McCall advocates a similar sort of approach for the Warrior-Trader. The trader should only engage with the market for small amounts of time, during which the trader needs to be focused and attentive to what they are doing, and how they are executing their trading plan. Being focused for only a short period of time means that the trader does not allow their finite amount of energy for that day to ebb away as time trundles by. McCall seems to only trade the e-mini S&P market, whereby his trading plan only allows him to trade for the first hour of the trading day (9:30 a.m. EST to 10:30 a.m. EST). He is thus able to confine his trading activity to a specified time period during the day, during which he focuses on doing one thing and one thing only: trading his plan. From what I can gather, he trades off of one minute charts, looking for short term over-bought and over-sold setups.

The forex market is obviously completely different to the e-minis, and my current use of the 4×1 methodology does not require me to focus on the markets exclusively for a fixed amount of time at a given time each day. The fact that news trading is an activity that is done at fixed times on specific days, and that trades are over very quickly, obviously peaked my interest.

My rationale for not exploring news trading as a viable technique in my trading toolkit was explained pretty clearly in my entry yesterday.

I think the point that McCall makes is still a valid one, and something that I need to keep in mind as I trade going forward. You only have a certain amount of physical and mental energy each and every day. Your regular day job is going to require a certain amount of those energies. So is interacting with your family. Doing exercises and keeping healthy. Chores. There are many things that we need to do each day just to get by. It is important to make sure that you don’t run out of energy for when it comes to the things you want to make yourself better at. You need to make sure that your self-improvement gets its appropriate amount of energy each and every day.

For myself, I do the vast majority of my trade analysis first thing in the morning. I’ll get out of bed, have a shower to clear my head, and then meditate to center myself for the day ahead. While eating breakfast I’ll power up my tablet PC, check out my morning trade related e-mails and look at my charts. I’ll let the information sink in before deciding what my plan of action is going to be for the rest of the day. I might close out or add new positions then and there. With my basic intentions for the day ahead in place, I’ll then get ready for work and head to the day job. There I am able to monitor the movement of the markets, although I will only look at two or four hour charts, so as to not be caught up in the random ticking up and down that the markets have on the shorter time frames. I’ll check the charts every so often, and if price behaves in such a way that it comforms to what my daily plan laid out, then I will act, again either closing out a position or opening a new one.

The vast majority of my trading energy is thus expended in a concentrated period of time at the beginning of the day, when I am at my freshest and most relaxed. Given the nature of my current trading plan, I think this is pretty much the best I can do to adhere to the recommendations of Richard McCall.

Now, let’s take a look back at my trading activity for last week.

I closed out my largest losing position (which had originally been opened at 1.2771) on Monday. The probability of another sustained dollar move was too great at this time, and I felt it was only appropriate to make sure that I was not over-geared with positions too high in my grid if we broke to the downside.

The euro made a modest comeback on Tuesday and I closed out my Q1 position from the week prior (which could have been closed out multiple times that week, but which I failed to do). At this stage, with euro being so range-bound (between 1.25 and 1.257) for a week now, it was always going to be more likely that a move would result in a breakout of the range. If it broke out to the upside and I was only grabbing 30 pips, then I would obviously not make the most of the breakout. Alternatively, the move to the top of the range could be just that, and could be followed by another move to the bottom of the range, followed by a breakout to the downside. Taking my 30 pips profit I was at least taking home some daily bread. If it broke to the upside I had my earlier entries at higher levels to utilise in reaping some profits from a stronger euro.

Wednesday, price was back at the lower end of the range, and I entered a new long Q1 position for three lots.

Thurday, price was again at the top end of the range, where I again took 30 pips profit. During the New York session on Thursday we had a breakout of the range to the upside, and price made its way all the way up to 1.2645 before stalling. I took profits on one of my earlier Q2 entries at just around the high for the day. On Friday, price retraced down to 1.26 before meandering and closing out the week at around 1.2616.