Why become a Rule-based forex trader - Dr Ref Wayne

You are wondering why become a Rule-based forex trader? I am about to tell you one of the most powerful Trading Secrets that has made forex traders at banks and hedge funds millions o bear with me if I start by telling you a something that will help me explain even to the beginner forex trader.

I enjoy flying Silindile but I absolutely hated taking my private pilot’s license. What I hated was that every time before the plane even started, my instructor would always make me do preflight checklists. 

This means for up to an hour we would slowly go over every function of the plane to see if they were working correctly, from the flaps to the cockpit instruments and if everything is working perfectly, then and only then were we cleared for take-off. 

I think I hated this because my instructor was a very young man!! Nevertheless, you know what I did Silindile?, one day he called me that he was going to be late and that I should do the pre-whatever checklist alone. 

Well I didn’t, so when he came I told him that everything was ready, as I soon found out it wasn’t! I had not turn the De-icer on and last night there was a lot of snow and so ice was in some of the very important cockpit instruments. 

I only found out when I was high up in the air when suddenly my altimeter which measures height and my artificial horizon was not working, what this means was that I didn’t know how high I was and if my plane was flat or a bit tilted. 

I panicked, and in my panic I made things worse, fortunately, the “small boy” got a hold of the controls and using his eyes as instruments brought us back to the ground safely. I tell you the truth when I say from then onwards Silindile I would make sure I do my pre-flight Checklist twice even three times! 

Why is this important and what has it to do with Trading? 

Everything, What gave me success initially gave me success in trading was that I created what I call a Pre-Trade checklist. 

What this means, is that there is no way on earth I was getting into a trade without certain pre-determined rules where fulfilled! 

No matter how attractive a trade was to me, I would never enter a trade until all factors come together.

What I did and what you should do Silindile and every other trader out there is that you should write down on paper your pre-trade check-list and stick it on your wall, before you take a trade, all the factors on your pre-trade checklist must be a yes! 

Now here is one of my pre-trade checklist that produced my most memorable trades. The first thing I would check where my fundamentals, I actually didn’t did not need to check on much, usually I checked last month’s or if it is very important, I would look at last week’s data. 

I did not need to calculate or look at the numbers with eyes of fire Silindile, all I needed to know was if the numbers are good or bad. I will be teaching you this in the Fundamentals lesson. 

I also would scout google for any significant news events, or if that old lady Yellen had woken up on the wrong side again and was saying bad things about the Euro or whichever currency she wanted to revenge on because someone did not make her coffee right in the morning (Yellen is a very important figure in her words and analysis can do some damage economics). 

After I do that, I look at currency on a 4 hour and daily to see if the good numbers from last month and announcements are actually translating to a stronger currency these past few weeks as the buyers are buying into the good healthy figures. 

If that is the case, then there is one secret most do not know about the market, that once a price starts in a certain direction, it does not want to change until something big happens to either slow down the buyers/sellers or to tip the currency into one of the two’s favor. 

And so I have established this currency is bullish! It doesn’t matter what you show me or what you try to sell me, I never sell on that currency. All I am looking for as I enter the market is an opportunity to buy Phase 1 of my pre-trade checklist is complete.

Now I go down to the hourly chart to look for opportunity, remember, unless something happens, I am buying! I am not selling, no matter what, I am just buying. 

But where exactly? 

Well if I am buying, I am buying at the lowest price, this is the price point where previous buyers are exiting the market and new ones are coming in, these are what you call “retracements”. 

Once you mention the word retracements to me, I am taking out my Fibonacci retracement tool. If currency is going to retrace, it will respect one of 3 things, previous resistance, Fibonacci levels or Oversold or Overbought values in this case oversold values). 

I personally enjoy Fibonacci retracements, and I also look at Oversold and overbought zones and the RSI or Stochastic was my portion. I know some of you are screaming MOVING AVERAGES GABRIEL MOVING AVERAGES! Well if you are into that you can go down to the 15min chart and insert the 21 and 55 Moving Averages, you can even add the 5 and 8 moving averages if you are crazy with your indicators and that’s all I needed. 

Now for my entry, I would ask myself, from the charts, is the currency bullish or bearish, my 21/55 moving averages would have to tell me that of course. If my 55 was below the 21, then that’s then the trend is bullish. 

But I really didn’t care what moving averages where saying, My Fibonacci levels where more important to me, more so if the Fibonacci levels in the region of previous resistance, then that’s a buy for me. And if it so happens that the currency is oversold, well that’s a bonus for me and that would be one of those no brainer trades that has to go your way. 

And in such a case, I would place pending buy limits on previous resistance zones and Fibonacci zones, the more price retraces the more buy limits it triggers (do this only and only when you are now confident of your trades. 

Now, if any one of these rules are violated, then there is no way I am getting into the trade, and if they are violated while in the trade, then there is no way I am staying! For example, if my (poor) fundamental analysis does not match up with what the currency is doing on the 4 hour or daily, then there is something I do not know that’s causing the markets to go this way and there is no way I am entering in the trade. 

If the price breaks through all major previous resistance regions and continues bearish until all Fibonacci levels have been violated, then something has spooked the buyers and they do not want in on this so in this case neither do I! 

You will find Silindile that every weekend in my small trading journal I had currencies which were on my watch list. They have already fulfilled my (poor) Fundamental Analysis and the next thing is to look for entry points. I had an impressive success rate with this strategy. 

This is not the strategy I use now however, as a matter of fact, my best strategy ever to be brutally honest with you requires that you have some deep pockets (the kind that can let you folk out above $2 000 per month), to subscribe to legal paid services. 

Now I do not have to chase after the bond market or see what the stock market is doing or dig around macro-economic data, I do not have the time for that, these paid services will give you a wide eyed view of who is in the market and who is buying. 

Now rules apply everywhere, whether you are trading Order-Flow and Auction Market theory, or pure Fundamentals, or Technicals you must have rules that govern your trade. Now, I have many strategies, but I chose this one because of its simplicity and effectiveness. 

I hope I have answered your question Silindile, and in so doing given you a basic peek into what happens in the mind of a rule based trader. The moment you apply rules to your trading strategies, you weed out all the bad trades and are let with the good ones.