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James Chen,  Chief Technical Strategist at FX Solutions, provides quite a few interesting tips to forex traders and stresses the importance in risk management.

In the interview below, Chen also discusses his return to FX Solutions, preferred currency pairs, his approach towards automated trading, and why he focuses on technical analysis.

What triggered your return to FX Solutions?  

I recently returned to FX Solutions after more than a year at FXDD.   I had a good stint at FXDD, and left the firm on positive terms. While there, I did a lot of speaking engagements around the world, issued a lot of market analysis, and trained a lot of traders. I came back to FX Solutions for several reasons.   Most importantly, I recognized the global growth potential of FX Solutions as a part of the City Index group of companies. In addition, there is a really strong team of analysts/educators at the City Index group of companies (including Ashraf Laidi, Sandy Jadeja, and Josh Raymond, among others at City Index Limited), and I wanted to be a part of that. The group is expanding throughout Asia, the Middle East, and Europe, as well as other regions, and I was looking for global development in those areas. In the U.S., FX Solutions is looking to expand its offerings and target further growth. So when FX Solutions called, I was excited about the prospect of coming back.

Do you factor in fundamentals when preparing a trade? If so, how?

I do pay attention to fundamentals, but only to help establish a general market bias for the currencies that I’m looking at. In my day-to-day analysis of currency trading, however, I am almost purely technical. I believe technicals have the advantage over fundamentals of providing traders with specific guidelines as to potential entries, exits, and risk management. In addition, technicals can provide the key elements of trend determination and market bias. For me, fundamentals are only useful insofar as they help me to confirm or refute my technical view of the market bias.

In the many webinars you hold, you get to feel the traders. Have you seen changes in recent years? Is the level of education rising?

Yes, the level of education has definitely been rising over the years. It used to be that I would talk to traders much more about the basics of forex trading. But nowadays, people mostly want to talk about advanced trading techniques and strategies. As the industry has evolved, many people are already comfortable with forex trading and just wish to take their approach to a higher level.

What do you believe to be the most misunderstood aspect of trading?

I think the most misunderstood aspect of trading is the seemingly perpetual search for what is termed the “holy grail” of trading. As you and I both know, there is no holy grail of trading. People are always looking for some spectacular entry technique that will make them consistently successful in the markets. There really is no such thing. The closest thing that could possibly come to this is an exceptionally prudent, exhaustively-tested trading approach that incorporates extremely strong risk management principles. In my view, no single entry technique, however good it is, will achieve consistent profitability without great exit technique and a rock-solid risk management plan.

In your opinion, what holds many traders back from being net-winners?

This goes back to the lack of risk management skills. I always tell people that in my opinion, it is better to have a passable trading strategy with stellar risk management than it is to have a stellar trading strategy with only passable risk management. If you are unable or unwilling to control your risk properly, then any success you have with your trading strategy is probably short-lived. Potential net profitability absolutely depends upon knowing and controlling your downside.

Volatility has certainly returned to markets so far in September. Does this change your parameters for trading? Do you use different parameters for the slow months of summer and for the rest of the year?

Yes, we have seen some increase in volatility recently. However, this does not substantially change the way I approach any given market. Generally speaking, my well-tested technical strategies are consistent and do not deviate, unless the results of my strategy testing tell me otherwise. There will always be both expected and unexpected changes in volatility. The goal is to have a trading approach that can adapt itself to various types of market conditions, or stay out of the market under less-than-ideal conditions.

Do you have any “favorite” currency pairs?

I generally stick with the majors because I like to have as much liquidity as possible for my technical strategies. That being said, I am not a huge fan of USD/JPY, as I find it to rather difficult to trade technically. Instead, I tend to prefer EUR/USD, GBP/USD, USD/CHF, and AUD/USD.

What do you think about automated trading?

I am a proponent of automated trading. In fact, over the past several years I have been in the process of automating many of my trading strategies. In my opinion, the greatest advantage to automation is the elimination of emotional trading. If you have a well-tested strategy that shows consistent returns with low drawdown, automating that strategy can make a lot of sense. It ensures that the trader will not make any rash decisions based on emotion (greed, fear) that can be very detrimental to good trading technique. Automated trading makes entry/exit decisions clear-cut and devoid of ambiguity. This can truly be a very good thing. That being said, there are many strategies that cannot be automated simply because they rely to one extent or another on trader experience and discretion.   Many of my favorite strategies, though, can and have been fully-automated.

Are you planning to write any additional books?

At the moment, I’ve been busy with my transition back to FX Solutions, but yes, I am thinking about writing a new book. I will provide more details as it develops further.

Could you share a tip to forex traders?

There are several tips I would like to share. Always focus on applying prudent risk management in your trading. Always have a specific trading plan that details all aspects of your daily trading activity. When possible, take the path of least resistance by trading with the prevailing trend on whichever time frame you choose to trade. Focus on trade exits as much, or more, than trade entries. In order to have a chance at achieving consistent profitability, target longevity in your trading by being as conservative as possible in your money management.

Do you wish to add anything else?

I would just like to say that I truly appreciate being interviewed by Forex Crunch. Your site has become one of a handful of top information sources in the industry, and I know it is the go-to site for countless traders across the globe. I’ve followed you since the beginning, and truly appreciate all you have done over the years for the forex market and for currency traders around the world.