Sunday, July 25

Morning spent reading and learning afternoon once the markets open will be spent trading. A few interesting things I learned today that may be worth trying out over the course of the week.

• Watch Market Volume. As volume increases, so will volatility. This is a great time to catch a moving trend – When volume is averaging higher. This is also a great time to lose your shirt, so extra caution must be exercised during times of increased market volume. Don’t use intraday charts for comparing volume averages. Try 1 hour charts for this, or longer. One recommended approach suggested using ‘the 27% rule’. This means that when volume increases by 27%, a position size is reduced. Once the volume increase hits 40% the position is fully exited. The idea is that as volume increases, so will volatility, and therefore the chances of sustaining losses are much higher. Futures Magazine also recommended taking the opposite approach on the other end – when volume decreases by 27% to increase your position size, and to continue increasing the position size 20% for every 10% decrease in volume. This sounds like the strategy of a more long-term trader than me and I am unsure if it would work with my system, nonetheless I am going to be watching and utilizing volume indications to better correlate volatility and movement with my positions.

• Although I have heard much about it before and it is a widely used trading strategy, one technique I want to try to play with this week is scaling into positions. Rather than making an initial purchase of my entire position, I’m going to try it in half’s. Enter half of my position (say 2 lots on a 5 lot order) and once my directions is confirmed after a correct directional movement of 5-10 pips, enter the trade with my remaining lot order. One thing I am also planning on experimenting with is to use this same strategy on exit orders. Once the take profit order hits, I will exit the trade with half of my position I will hold the remaining half and reset my stop/loss orders at that time. I will set the loss end to be my profitable exit point for the first half, and will set a new take profit higher to let half the position ride. This way, I will still be stopped out at my same 50 Pip profit order regardless, but will also open myself to gaining potential larger returns from some momentum trades to generate more revenue and minimize the impact of losses.

• I also need to be more aware of the correlation of different currencies and how they affect each other. A different article I read today made me more aware that even though I may have 4-6 open positions at any given time, I may not be truly diversified because of the way the global economies’ can work in tandem. This is an action item for me: To better plot and correlate how movement of one currency affects another. This is something I have only a little grasp on currently.

• Another action item for the week is to set up a monthly calendar with all scheduled pertinent news releases. I also need to be aware of all reports that are released which will affect my trading, and which will not, so I may be more aware of the sectors I am investing in.