Phase 2: Deepening the basic version of the OFS Trading System

If all went well, at the beginning you especially spent time learning to understand the rules of the OFS Trading System, developing the right mindset and studying trends from the past. Now the time has come to gain more in-depth knowledge about various important aspects, such as examining the big picture, integrating the market sentiment into your analysis’s and to consider in which ways you’re going to be able to manage a trade.

By gaining more in-depth knowledge about these aspects, in the first place your win ratio is going to increase while practicing the basic version of the OFS Trading System. In addition to this in the meantime you’re laying down a good foundation anticipating the moment you’re going to practice the extensive version of the OFS Trading System!

Looking at the big picture

Sometimes it’s difficult to get a clear view of the situation when your nose is on top of it. In such a case it could be sensible to look at it from a distance, for then you’ll notice that you’re getting a far better view. This principle also goes for forex trading and consequently it’s always important to look at the big picture when you’re working out a trade setup.

In the first place you’re going to look at the big picture by zooming out on the current chart and by scaling in on a higher timeframe. The purpose is to be able to see the current situation in the right perspective and to discover possible bottlenecks as well as points of attention which you’re not able to distinguish in case you’re not zooming out or scaling in on a bigger timeframe.

What’s happening on the bigger timeframes?

The first thing you have to look at is whether there is actually question of a trend. As it happens it could well be that there seems to be an uptrend on the 15 minutes chart, but when you start scaling in, it appears to be a range. In that case you shouldn’t forget to estimate the setup in accordance with its value and you should observe to what extent this affects the chance of success and how you should manage the trade when it’s about the take profit levels.

The same goes for the situation when for example you see a downtrend on the 5 minutes chart, but on the hour chart you then see that this downtrend appears to be part of a retracement within an uptrend on the hour chart. That doesn’t mean by definition that you cannot take the trade setup, but you’ll surely have to make a sound analysis of this situation.

In addition to this in general you’ll also have to pay attention to important support and resistance levels and to the information which you can get from the candlestick patterns.

Important support and resistance levels

By zooming out on the current chart and by scaling in on a higher timeframe, you’ll be able to see at a glance the most important support and resistance levels a lot easier. These levels have influence on your entry moment, but also on the way you’re managing your trade as optimal as possible. This way it’s possible that a support or resistance level sees to it that it is more sensible to let go of a setup or to adjust your take profit level because of possible resistance.

Important candlestick patterns

When you’re scaling in on a bigger timeframe, there’s a chance that you’ll see a candlestick pattern which is conflicting with your trading setup. So at that moment you’ll have to think twice whether you should take a position or not. When you’re looking for a very good study on candlesticks and price action, I can warmly recommend “Candlestick made easy” composed by Chris Lee.

More information leads to better decisions

The more information you’ll have at your disposal, the better decisions you’ll be able to make and by looking at the big picture you’ll consequently gather more information, as a result of which you’ll be able to look at everything from a better perspective. This shall have a positive effect on your win ratio as well as on the way in which you’ll be managing your trades.

Finally you’ll also experience ignoring certain trade setups due to possible contradictory signals. Remember that it’s better not to trade instead of trading moderate setups!

Take the market sentiment into account

For beginning forex traders it’s very difficult to use fundamental analysis, purely because this matter is tremendously complicated for novice forex traders. However by taking the market sentiment into account, you’ll be relatively easy able to improve your win ratio and to prevent unnecessary mistakes. Apart from that you’ll notice that you’ll be getting more confidence in making your decisions.

The market sentiment indicates the extent of the willingness of investors to take risks and this often manifests itself in a rise or in a descent of specific currency pairs, raw materials and markets.

By gaining more in-depth knowledge about the influence of the market sentiment, you should avoid opening a position which is incompatible with this sentiment. Of course the reverse could also be possible, which means that the market sentiment is consistent with your trade setup and as a consequence the chance that this will succeed could just be more favorable. By daily reading the market analysis’s, in no time you’ll get a view on the market sentiment and on the influence of this sentiment on the various currency pairs.

Managing your trade to the full extent

As soon as you’re able to manage the basic version of the OFS Trading System the way it should be handled, the time has come to consider to start managing your trades to the full extent instead of blindly following the rules. At this you could concentrate on the stop loss levels as well as on the take profit levels.

Stop loss levels

When you have neatly passed through every stage of phase 1 and when you have adequately examined the trends from the past, you definitely should have noticed that the standard rule regarding the stop loss isn’t always optimal. Occasionally it will make more sense to place your stop loss a bit higher or a bit lower then it is prescribed by the standard rules.

Try to determine the most optimal price level to place your stop loss based on support and resistance levels, preceding swings and SMA lines.

Several take profit levels

When you’re just about to start trading with the OFS Trading System, you’ll mainly use one take profit level which equals the preceding high or low. In itself this is fine, but when, based on the big picture, you have seen that there is a fair chance that the trend might be persevering, then in fact you have failed the chance to make more profit.

In this phase it’s important for you to examine how you can optimally manage a trade. For example you could split up your position into two parts, in which case you close the first part at the preceding swing high or low and you leave the second part of your position open and instead you determine another take profit level based on price projection and important support and resistance levels.

Another option is to determine your second target based on candlestick patterns, or that is to say on price action. When you’re expecting a reversal based on the candlestick patterns, then consequently you’re going to close the second part of your position. When you’re looking for a very good course on candlesticks, I’ll be glad to recommend the study “Candlestick made easy“.

Several variations

There are several variations available when you’re looking for ways to manage your trade as optimal as possible. This way you could think of different take profit levels, but also of an interim shift of your stop loss. In order to manage your trade as optimal as possible, your target should be aimed at striving for a maximum profit expectation. So try to experiment a bit with these possibilities and examine which style will suit you the best.

Conclusion:

By gaining more in-depth knowledge regarding the above mentioned aspects, your win ratio will increase practicing the basic version of the OFS Trading System. If I’ll have to give an estimate, I’d say that your win ratio should be between 50% and 80% with a risk/reward ratio which will mostly be between 1:1 and 1:2 for take profit target 1. For the second part of your position the risk reward could become a lot higher.

The difference between 50% and 80% might seem very large, but this has mainly to do with the quality of your capability to interpret the big picture, integrating the market sentiment into your analysis’s and your experience to let go of dubious setups. This will keep improving as long as your experience will keep increasing. So allow yourself enough time in this respect.

Anyway, make no mistake regarding the extra profit which you should be able to gain by managing your trade as optimal as possible and by using a second take profit target. Even if your win ratio should remain the same, but you do succeed in managing your trades in an optimal way, your nett profit will increase tremendously!

In the next article I’ll consider at length the choice between several timeframes and the number of currency pairs.

Be Sociable, Share!

Related Posts:

  1. Phase 1: Basic version OFS Trading System

Speak Your Mind

*