How To Increase The Winning Probability Of Your Forex Trades

When trading with the online broker iqoption, price action trading strategies can be very potent ‘weapons’ to trade the markets with. To read the entire iqoption strategy on this you can check the iqoption avis here. We just have to learn to use them correctly and accurately. Most of us have a limited supply of bullets (money), so we have to make each bullet count and not waste them on low-probability targets (stupid trades).

So, how can we ‘fine tune’ our price action trading to make it into a high-probability trading ‘weapon’ so that we very rarely waste our bullets? This is your main mission as a price action trader; this mission is not an easy one and it’s going to take discipline, fortitude and the ability to pull the trigger only when your target is present. But, if you dig-deep and really want to be a profitable trader, you can make it happen.

So, without further delay, let’s get down to the business of getting your trading strategy ready to go to ‘war’ in the Forex markets:

Stop voluntarily decreasing the probability of your trading edge

Unlike lifting weights, where doing more typically makes you bigger and stronger, trading more will not make your trading account bigger or stronger. In fact, it will probably make your trading account a tiny little floundering wuss.

If you haven’t read any of my other articles on trading Forex brokers with patience, go back and do that later. For now, I will briefly explain to you why trading less frequently will make you a better and stronger trader.

The reasons are pretty simple. First off, your trading edge is not always going to be present in the market, so you have to have the patience to wait to trade until it is. This typically means you will be out of the market more than you are in it, which is of course totally contrary to what most traders do. Most traders can’t stand to be out of the market, they feel an ‘itch’ to enter a trade that will not go away until they hit that buy or sell button. So they enter a trade not based on their edge, but based on emotion instead.

The Forex Broker Libertex

The point with the broker libertex avis is this, most of the trades a losing trader makes are ones born out of emotion, or because they just feel like they want to trade. If we really stick to our predefined edge, price action trading in my case, we will naturally be waiting for our edge to form more than we will actually be trading. Any high-probability edge in the market is not going to be present all the time, we have to wait for a market to ‘show us its cards’ first, and it may only do that one or two or three times per week. So, the first and perhaps easiest thing you can do to increase the probability of your trades is to stop decreasing their probability by trading when your edge is not actually present! You can do this by employing the disciplined to ONLY trade when your edge is present…in other words, stop trading just because you ‘want’ to!

Confluence is like ‘steroids’ for a price action setup

Everyone knows I teach and trade price action. However, I know from emails that I get that a lot of people who follow me think that ‘price action trading’ means trading any old price action setup; they seem to totally ignore the market context that the setups occur in, which is actually just as important, if not more than the individual setup itself. Essentially, I am talking about confluence here, and trading price action setups at confluent points in the market is really the ‘core’ of my trading philosophy. I talk a lot about trading Forex like a sniper and not a machine gunner; well, waiting for price action setups to form at confluent points in the market is HOW you trade like a sniper. Traders who just enter any PA setup they see, without considering the context it’s occurring within, are machine gunners, not snipers.

There are many different ‘factors of confluence’ that I teach to my members, but for today’s lesson we will just stick with horizontal and dynamic support and resistance levels in order to illustrate the point. I use the 8 and 21 daily EMAs for dynamic support / resistance, and horizontal support / resistance levels are simply your classic technical analysis support and resistance levels that connect highs to highs and lows to lows.

To trade with confluence, we want to first scan the markets for an obvious, or well-defined, price action setup. If we find a setup that meets our criteria, we then look to see if it has any supporting factors of confluence.

In the chart below, we can see 3 price action setups that each has three supporting factors of confluence. All three of these setups had confluence with the near-term bullish momentum / trend, dynamic support from the 8 and 21 day EMA layer, and support from a horizontal (static) price level. This is one example of trading price action setups from confluent levels in the market.

probability

To contrast, here’s an example of two price action setups that were well-defined but didn’t have any obvious supporting factors of confluence…

In the chart below, we can see two very good looking bullish pin bar setups. Now, the obvious problem with these pin bars is that they are against the near-term trend, which was clearly down at the time. However, on top of that, they also did not have any supporting factors of confluence such as a key horizontal support level, dynamic EMA support, a 50% retrace, or any other factor.

In the chart below, we can see two very good looking bullish pin bar setups. Now, the obvious problem with these pin bars is that they are against the near-term trend, which was clearly down at the time. However, on top of that, they also did not have any supporting factors of confluence such as a key horizontal support level, dynamic EMA support, a 50% retrace, or any other factor. It’s setups like THESE that I get emails from traders about asking “Nial, I traded a well-defined pin bar the other day, why did the market go against me”?

The answer is two-fold: First, it’s important to remember that not every setup works out, even a perfect looking setup with 5 factors of confluence can and will fail sometimes. Thus, we need to always practice proper forex money management. Next, in order to use our ‘bullets’ as effectively and efficiently as possible, we need to always make sure we take high-probability price action setups, meaning setups that are well-defined AND that are in agreement with the overall market context they’ve formed in, AKA they have confluence.

probability 2

The point to take away from the above two charts, and the main point of this article, is that trading price action setups from confluent points in the market is the best thing you can do to improve the probability of your trades. Too often, traders simply aren’t patient and picky enough in regards to their trading, and they thus end up throwing their money away in the markets. Just remember that every time you find a potential trade setup it’s YOUR HARD-EARNED MONEY you are about to lay on the line, so ask yourself if the setup has enough supporting factors of confluence to be worth trading.

Think before you ‘shoot’…not after

Most beginning and losing Forex traders seem to behave as if they are best able to navigate the markets after entering. This is akin to an army general thinking that his army has the best chance of winning a war if they just dive into war first and ask the questions later. Fortunately, in (most) wars, governments usually plan and ask the tough questions first, so that they know what they are doing when they are on the battlefield.

In trading, most traders seem to do the opposite; they try to plan, think and strategize in the heat of the moment, when their money is on the line and they are the most emotional.

 I will say that we need to do our analysis and most of our thinking about the markets BEFORE we enter, this gives us the highest-probability of succeeding as traders. As soon as traders enter a trade and THEN start thinking about it and over-analyzing it, they almost always lower their overall probability of profiting over the long-term.

There’s nothing wrong with checking on your trade every 4 or 8 hours or so, but you should not be thinking about it much, if at all, in between. The best thing to do is to pre-plan all your potential interactions with the market, and then follow that plan to the T, this way you deny the possibility of emotion coming in and destroying your trading account.

Trade higher time frames

As I discussed thoroughly in a recent article on trading daily chart time frames, you can significantly improve your trading by ignoring time frames under the 1 hour chart all together. I actually NEVER look at a time frame under the 1 hour. There is simply no reason too, they are messy, full of random market noise and will tempt you to enter a trade that you know you shouldn’t. In short, if you want to improve your accuracy and the probability of your price action trade setups, focus on the higher time frame charts.

Money matters

If you want to give yourself the best chance at taking the highest probability trades and avoiding low-probability / emotional trades you’ll need to make sure you are not A) trading with money you need for other things in your life and B) not risking more than you are comfortable with losing on any one trade.

When you are only trading with disposable income and never risking more than you are OK with losing per trade, you will be much calmer and more objective. This will obviously work to help you to only take high-probability trade setups. Traders who are strung-out and frazzled because they are overly worried about the money they have at risk in the markets are naturally going to take low-probability trades because they simply are not thinking clearly.

Remember, you never know for ‘sure’ what’s going to happen

As traders, it helps to always expect a random outcome from our trades, even though we may have mastered a high-probability trading edge like price action. Even if we have say a 60% or 70% win rate, it is a randomly scattered win rate, meaning we never know which trades are going to win and which will lose. For instance, if you have a 60% win rate, you could theoretically lose 40 trades in a row out of 100 before you hit 60 winners. So, knowing this, we have to approach each trade as just another execution of our trading edge, while doing everything we can to put the odds in our favor.

Everyone knows that I don’t sugar-coat anything, so I’ll tell you that there is no ‘perfect’ trading signal, and that goes for ALL trading strategies and systems. Even if we have multiple factors of supporting confluence, a perfect trend, and a perfect price action setup, the trade can still lose. Thus, it’s important to trade with these facts in mind while simultaneously making sure you do everything you can to only take the highest-probability trade setups.

Set and Forget Forex Trading – Keep Your Day Job

‘Set and Forget Forex Trading’ is as simple as its name implies; you simply “set” the trade up and then “forget” about it for a period of time. This has two major benefits: it makes it far easier to stay emotionally disciplined and it also allows you to go about your life as you normally would, because you will not be spending hours in front of your computer over-analyzing the markets…

Often, aspiring Forex traders that want to start read the plus500 review and get engaged with the amount of data that the various financial media outlets like https://www.ft.com/ plaster all over the internet and television. It is extremely easy to experience “analysis paralysis” while trying to trade forex or any market for that matter. There are so many competing ideas and trading methods along with more fundamental data coming out every day than you could ever hope to digest, it can be overwhelming to even try and make sense of it all and develop a forex trading plan based off this amount of information. One of the biggest psychological mistakes that almost every aspiring trader makes on their journey to success is firmly believing that the amount of economic data analyzed and (or) having a technically complicated or expensive trading method will help them profit in the market. In reality, as most professional traders will attest to, these factors usually have the opposite effect on trading profits, at least after certain point. This essentially means that once you do a certain amount of analyzing market data, any further time spent analyzing this data is likely to have a negative effect on your trading; it causes you to lose money.

Why it’s Counter Productive to Analyze too Much Market Data

It may seem confusing or counter intuitive to the aspiring Forex trader when they first hear the fact that analyzing too much market data can actually cause you to lose money faster than you other wise would. The believe that “more  is better”, is a psychological trap that often keeps aspiring traders from consistently profiting in the Forex market and is the reason why many of them blow out their trading accounts and eventually give up all together.

The main reason why this occurs is because human beings have an innate need to feel in control of their life and of their surroundings, it is an evolutionary trait that has allowed our species to perpetuate its existence and ultimately arrive at our current modern day level of civilization. Unfortunately, for the aspiring Forex trader, this genetic trait of all human beings works against those trying to succeed at Forex trading. In fact, most of our normal feelings of wanting to work harder than the next guy or spend extra time studying and researching for our jobs or for school are feelings that are really not beneficial to success in the Forex market.

The problem with trying to apply the idea of “hard work” to Forex trading, is that beyond a certain level of technical chart reading ability and awareness, there really is no beneficial aspect to spending more time on tweaking a trading system or analyzing more economic reports. The bottom line here is that there are literally millions of variables involved in trading the Forex market; each person trading the market is a variable and every one of their thoughts about the market is a variable because these are all things that can cause price to move. So, unless you are somehow able to keep track of every trader in the market and all of their thoughts, in addition to the hundreds of news and economic reports that come out each day, you essentially have no control over price movement. Trying to analyze numerous pieces of economic data each day or trying to come up with an overly complicated trading method is essentially just a futile attempt to control something that simply cannot be controlled; the market.

Thus, the underlying cause of Forex trading failure begins with the idea that traders feel a psychological need to control their surroundings and when this emotional state meets the uncontrollable world of Forex trading it almost always has negative consequences. This problem works to snow-ball itself as well because once a trader loses a few trades he or she begins to get angry and wants to “get back” at the market. The way they do this is by reading another trading book or buying a different trading system that seems more “likely to work” or by analyzing the inner workings of every economic report they can find and trying to predict how it will affect the market’s price movement. Once this process has begun it is very difficult to stop because it makes logical sense to us that if we put more time in and do more work we will eventually figure out how to make more money faster in the Forex market. The difficult truth to all of this is that, as stated earlier, after you reach a certain degree of technical and fundamental understanding, any further research or system “tweaking” beyond that point will actually work against you and the rate at which you study more and do more research is probably about the rate at which you will lose your money in the market.

Less is more in Forex: ‘Set it and Forget it’

So how does the aspiring trader achieve consistent profitability trading the Forex market if we are genetically primed to over-complicate it? The very first step in this process is just accepting the fact that you cannot control the uncontrollable Forex market and checking your ego at the door. The Forex market does not care what you have done in your life before; it has no emotion and is not a living entity. It is an arena where human beings act out their beliefs about the exchange rate of a certain currency pair. These beliefs are a result of emotions, and human emotion is very predictable when it comes to money. The point here is that the people mentioned in the previous section who are doing extensive amounts of research and trying to find the “holy grail” trading system are the ones who are trying to control the market and thus trading based off emotion. These people are providing the predictability for the professionals to take advantage of.

The paradox here is that professional traders may actually do less technical and fundamental “homework” than amateur / struggling traders; pro traders have mastered their trading strategy and they simply stick to their daily trading routine and see if their edge is there. If there edge is not present, then they just walk away for a while because they know that the Forex market is a continuous stream of self-generating opportunities, thus they do not feel pressured or anxious to trade. If their edge does show up then they set their orders and walk away, accepting the fact that any further action will probably work against them because it will be a vain attempt to control the uncontrollable and would not be an objective action.

The logic of set and forget forex trading is this; if your trading edge is present then you execute your edge and do not involve yourself further in the process unless you have a valid price action-based reason to do so. Traders that decide to mess with or tweak their trade once they enter it almost always kick start an emotional roller coaster that leads to over-trading, increasing position size, moving their stop loss further from their entry, or moving their profit target further out for no logical reason. These actions almost always cause the trader to lose money because they were not objectively thought out, but were instead influenced by an emotional reaction that was caused by trying to control the uncontrollable.

In the chart below, we see an example of how many traders get into trouble by being too involved with their trades. As the market retraced back toward the entry point of the pin bar sell signal, emotional traders would have probably exited for a very small profit or near break even because they felt “scared” or “nervous” that they might lose money on the trade.

emotional trading

In the chart below, we can see that just as the market got to about the low of the pin bar sell signal where most traders would have entered, it stalled and then fell significantly lower back in-line with the downtrend. Disciplined traders who do not “meddle” in their trades for no reason would probably have still been short and would have clearly made a very nice gain. Note how a traders could have waited for an opposing obvious price action buy signal to exit the trade…this is exiting on logic and price action rather than emotions like fear or greed.

trading chart

Make Money and Save Time by Doing…Less?

It is a well-studied fact that traders who trade off higher time frames such as 4 hour, daily, and weekly charts and hold their positions for multiple days, make more money in the long run that traders who “day trade” off intra-day charts. The reason many people are attracted to day trading is because they feel more in control of the market by looking at smaller time frames and jumping in and out of positions frequently. Unfortunately for them, they have not figured out that they have the same amount of control as the swing trader who holds positions for a week or more and only looks at the market for twenty minutes a day or even less. That is to say, neither trader has any control over the market, but day-trading and scalping gives traders the illusion of more control. The only thing we really have control over in trading, is ourselves.

The ironic fact about Forex trading is that spending less time analyzing data and finding the “perfect trading system” will actually cause you to make more money faster because you will be more relaxed, less emotional, and thus less likely to over-trade or over-leverage your trading account. Many people are attracted to speculative trading because they want a way to make money that is “less difficult” than their current job, but they soon forget about that and start spending countless hours digging themselves into a huge psychological trap that most of them never dig out of. All you basically need to do to consistently make money in Forex is master an effecting trading method, develop a written out trading plan based on this method and have a solid risk management strategy, you can then check the market one to three times a day for ten to twenty minutes each time. If your edge (price action strategies) is showing up than you set up your entry, stop loss, and target and walk away until the next scheduled time to check your trades.

Trading in this manner actually elicits a snowball of positive habits that work to further perpetuate your trading success. This entire article can be summarized by the following two sentences: People who spend more time analyzing market data and trying to perfect their trading system inevitably induce a cycle of emotional mistakes that work to increase their trading failures and eventually result in lost money and lost time. People who realize that the market is uncontrollable and build their trading plan around this fact will inevitably arrive at a “set and forget” type mentality that induces an emotional state that is conducive to on-going market success and consistent profitability. The trading method used is not as important as the psychological or risk management aspects of trading, but generally speaking, a method that offers a simple high-probability edge such as the price action trading method is the best method to use to maintain your “set and forget” mindset.

How Often Do Professional Forex Traders Actually Trade?

This article is going to challenge some of your beliefs about trading, especially the beliefs you hold about how often you should trade and the consequences that your trading frequency can have on your forex trading account. Hopefully after reading it you will gain some powerful insight that will help you stop over-trading or prevent you from turning into an over-trader like the guy in this picture on the right.

One of the biggest obstacles standing in the way of amateur traders becoming professionals is their lack of recognition and(or) acceptance of the fact that trading less frequently almost always produces more consistent and more profitable long-term market performance than over-trading and interacting with the market too often (ie: Day trader market junkies).

Professional traders view each interaction with the market through a realistic lens that does not filter out the risk involved with every potential setup, whereas amateur traders tend to think less about the risk involved and more about how much money they can make if XYZ happens. This is an important point to take into consideration before you enter your next trade.

• The extremely slippery slope of over-trading

If you have had any experience trading real money in the markets you very likely have experienced first-hand just how slippery the “slope” becomes once you start over-trading. Most traders do not even recognize they are guilty of over-trading until they have lost so much money that they are forced to take a break from the market, it is then that they typically realize what they have done; entered numerous trades with no sound logic or rational behind them.

Professional traders are always aware of the dangers of trading too frequently, they know that it is a very short stretch from entering one too many trades to full-scale addiction to the forex market and to chart watching. In essence, amateur traders that get caught up in a fit of over-trading in the forex market are simply gambling; continually entering the market randomly while hoping for a windfall profit. The professional trader is not a gambler; he or she is a risk manager who simply seeks to flawlessly execute their edge in the market only when it is present.

overtrading

This typically means that most professional traders are not day trading or scalping, instead they are focused on multi-day positions and look to take a good slice of the action that takes place in the market each week or month. This typically means taking multi-day positions in trending markets, because it is easier to take larger chunks of price action out of a trending market by holding multi-day positions than it is to constantly jump in and out trying to scalp the market each day.

Trading less frequently like this also makes you more immune to the slippery slope of over-trading. Even if you are following an effective day-trading or scalping edge, when you trade with the high frequency demanded by day-trading and scalping strategies, you drastically increase the odds that you will give in to the ever-present temptation to jump into the market when your edge is not truly present.

• You can’t get hurt from the sidelines

The value of simply NOT BEING IN THE MARKET cannot be overstated. Many amateur traders don’t even consider that being flat the market can actually be a very lucrative position, not to mention it is the SAFEST position you can take in the market.

To understand why not being in the market is actually a lucrative position you have to look at it from a different perspective. Let’s say point A is being flat the market, and point B is where you trading account stands relative to point A after a losing trade, you obviously had more money at point A than at point B, thus point A (being flat the market) is actually a lucrative (profitable) position compared to point B since you have more money in your trading account at point A than you would have had if you had lost that money in the market and went to point B.

sidelines

The fact that most amateur traders simply do not even consider the fact that being flat the market is valuable is directly related to the fact that they simply do not believe the market is as risky as it actually is, or they simply ignore this reality. Professional traders are fully aware of the risk involved in the market, therefore they inherently understand the value in being flat the market, and thus they trade less frequently than amateurs.

• How does trade frequency relate to long-term trading performance and a trader’s mindset?

Once you identify exactly what your trading edge is, and the market conditions that are best to trade it in, you can begin to trade with patience and precision because you now know EXACTLY what you are looking for in the market. In essence, you have to master one forex trading strategy at a time, so that you can almost instantly look at any price chart and tell if your edge is present or not. Once you obtain this level of trading mastery and skill, over-trading or entering a position when your edge is not present will seem silly to you and just down- right stupid (because it is!). To put it more succinctly, you are more aware of whether or not you are over-trading when you are completely aware of what your forex trading strategy is.

Due to the fact that professional traders have mastered their forex trading strategy, they trade less frequently than amateur traders because the pros are looking for a very specific event to occur in the market, rather than throwing darts in the dark like so many amateurs do. So, it almost goes without saying that once you totally mastered your trading edge, entering trades when your pre-defined edge is not present will have a negative effective on your long-term profitability. So, trading with precision and patience inherently means trading less often, but it also means greater profits in the long-run, which is the whole point of trading.

Traders who follow their trading strategy to the T actually enjoy the patience and the down time in between trades, it becomes routine and comfortable over time. They do not feel a “need” to trade when there is no setup that fits their criteria. Operating from this confident yet carefree state of mind while interacting with the market is the way you reinforce positive forex trading habits, like patience and discipline, because when you wait patiently for your edge to appear and then execute it with effective risk management, you will see positive results after doing this for a series of trades, these results will reinforce the positive trading habits that produced them.

Amateur traders tend to reinforce negative trading habits like over-trading and over-leveraging by getting lucky a few times while committing one or both of these trading errors, it really only takes one big lucky winner while over-trading or over-leveraging to condition your brain to constantly over-trade and(or) risk too much.

• So, how often DOES  a professional trader trade?

There is obviously no set answer for the number of trades that professional traders make each month, as every trader is different. However, if you are currently losing money in the markets you can safely assume that professional traders are trading less frequently than you are. If you are currently stuck in a rut of over-trading, one thing you can do if you are not already, is switch to strictly trading off the daily charts. Higher time frames lead to less trades but more precision and accuracy of the trades that you do take, you can also employ “set and forget forex trading” on the daily charts that requires only minor tweaking and minimal involvement beyond identifying your edge and setting the trade up.

In conclusion, if you take nothing else away from this article, just remember that professional traders are on average trading less frequently than you are simply because they fully accept and understand the risk involved with any one trade, so this tells you that you need to reduce the frequency that you trade or that you interact with the market. Let’s say that price action trading is going to be your trading strategy, once you master this trading strategy and you know exactly what you are looking for, there is no reason to sit at your computer all day staring at your charts. Set up a routine each day that you follow; you check for your edge, and if it isn’t there you come back the next day, or the next 4 hours or whatever your routine is. But, you don’t ever need to sit there and burn your eyes out watching the charts if you know what you are looking for.

Over Trading Is A Forex Trader’s Biggest Mistake

Over-trading is perhaps the most prevalent trading mistake that Forex traders make. This article will fully explore over-trading and provide some solid tips to help you overcome this extremely destructive emotional trading problem.

• Are you over-trading?

If you don’t know if you are over-trading you probably are. In fact, most traders who are not making money consistently in the markets are over-trading, whether they realize it or not. The problem with over-trading is that it can be difficult for the trader to know if they are doing it or not because it has many different ways of “sneaking” up on you without you realizing it.

For example, if you have committed to learning and mastering the daily charts first, do you still find yourself going and looking at the lower time frames more than you are looking at the daily charts? This is a very easy way to start over-trading. Traders who have not yet mastered price action trading on the daily charts are very likely to over-trade if they focus on the lower time frames instead. This is because lower time frames tend to be riddled with lower-probability trade setups that often tempt traders to take positions that they would not have otherwise taken had they been focused on the daily charts.

Another example; do you enter into additional trades just because your current trade is in profit and you’ve moved to breakeven? Was the additional trade setup REALLY valid or did you jump the gun because you were feeling excited about your first profitable position?

stop over-trading

There are many other situations in addition to the two discussed above that constitute over-trading. The main problem is that many traders are simply unaware that they are over-trading when they are in the moment. It is very easy to become fixated on a less-than-perfect trade setup and forget about your trading plan and not be consciously aware of whether or not you are over-trading.

Due to the fact that the emotion-inducing situations that occur in the market can sometimes be hard to detect and sometimes even over-whelming, we have to combat this enemy by planning out our trading plan and trading strategies while we are away from the market and not in any trades…


• The best way to stop over-trading is before you start…

As we just discussed above; because it can be difficult to realize you are over-trading when you are “in the moment” of trading, it is best to simply go on the offensive against over-trading by planning your trading strategy and trading plan in advance.

We can think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs. your “fight or flight” or emotional brain mechanisms. It is extremely difficult to over-ride thousands of years of human-brain evolution…especially “in the moment”. The best way to win this war is to make a comprehensive forex trading plan, and stick to it…passionately.

I would bet money on the fact that if you are reading this right now, and you do not have a tangible and practical Forex trading plan, you are probably over-trading. It is absolutely essential to create a Forex trading plan and follow it if you want to get on and stay on the right trading path. All traders must do this in the beginning to develop the proper trading habits of logical and objective trading rather than emotional trading. Trading the markets naturally induces emotion and emotional trading…so if you don’t purposely make a plan to counter this reality, you are almost certain to over-trade.

• Trading like a sniper…

In a recent article I discussed the importance of learning to trade like a sniper. This concept is very important to overcoming your problem with over-trading. If you are over-trading you are definitely not trading like a sniper, instead you are trading like a machine gunner by “shooting” at many more trades than you should…or by simply shooting at anything that you “feel” is a trade setup.

Not having mastered a proven and effective trading strategy like price action will also induce over-trading. Simply put…we want to trade like a sniper and not a machine gunner, and if you don’t know what your trading strategy is…and / or have not fully mastered it…there is no way you can trade with a high enough rate of skill to pick your trades like sniper. Basically, if you don’t know exactly what you are looking for in the market you will end up over-trading / shooting at every little thing that looks like a trade.

If you’ve been following the recent Forex market activity you are surely aware that the EURUSD has been consolidating recently, actually for about 2 months now it’s been in a trading range. I find that traders often over-trade in these types of consolidating markets because they lose patience or they simply do not know how to filter out the lower-probability trades in favor of the best price action trade setups.

Let’s take a look at the recent daily chart of the EURUSD and analyze the difference between over-trading and trading like a sniper…

(See the explanations corresponding to each number below the chart)

overtrade

1. At point one we can see two inside bars formed off support through 1.4050-1.4000. This setup was valid because the support level had already been tested recently on two previous occasions, and the setup thus provided us with an obvious inside bar strategy from a confluent level and a good risk reward scenario.

2. At point two we can see a bullish pin bar setup that formed off the 1.4050-1.4000 support area mentioned above. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

3. At point three we can see a bearish pin bar strategy that had good formation / definition and appeared to be in-line with the recent downward thrust. Now, the difference here is that the risk reward scenario was very poor since you would have been shorting right into the previously established significant support level near 1.4050-1.4000. A trader who is patient and skilled, and with a trading plan, very likely would have not traded this setup due to the fact that it required them to sell into a significant core support level.

4. At point four we can see another bullish pin bar setup that formed off the 1.4050-1.4000 support area. This setup was valid because we knew the level was significant, the pin bar was well-defined and obvious, and once again provided a good risk reward.

5. At point five we can see two pin bars that formed. These two pin bars had proper form…but this is a good example of the fact that a price bar formation is not really a price action setup unless it has some factors of confluence behind it. These pin bars were just “hanging” in the middle of nowhere with no supporting factors behind them; they weren’t off any core support level and resistance was pretty close overhead, limiting the risk reward potential. This was a setup that the skilled and patient price action trader very likely would have passed on.

• Over-exposure…

Another way many traders end up over-trading is by over-exposure to correlated Forex currency pairs. For example, trading the EURUSD and the GBPUSD is essentially like taking two nearly identical positions since the pairs are very correlated and move in a similar manner. So, you have to be aware of this and make sure you aren’t doubling-up your position. Even if there are two valid and high-quality setups in both pairs, you would not take both, you would use your discretionary price action trading skills to pick the better of the two setups and stick with that one.

This point of over-trading by trading too many currency pairs at one time also brings up the point that over-trading is basically the same as over-leveraging your trading account. Some traders get lulled into thinking by taking multiple positions they are diversifying or spreading their risk out, but in fact most of the time they are just adding risk by taking a larger position spread out among multiple pairs. You should view over-trading as two emotional trading errors in one; over-trading AND over-leveraging, because by over-trading you are also risking too much money.

• Less IS More…

If you really want to stop over-trading you are going to have to realize that less is more in forex. Unfortunately, many Fx traders come into the market with the opposite attitude; more is better. Aspiring traders tend to think that more trading is better, more indicators are better, more analysis is better, more hours in front of the computer is better, etc. However, this is definitely NOT the case and you need to understand this if you want to stop over-trading…

Spending too much time in front of your charts induces over-trading because you will over-analyze the nearly limitless amount of market-related variables out there and end up “manifesting” signals that aren’t actually there. Learn to “set and forget” and trade end-of-day strategies, if you can do this you will greatly reduce your chances of becoming a chronic over-trader. Remember, over-analyzing leads to over-trading.

Obviously, in the beginning of your trading career you’ll need to spend more time with the markets because you’ll need to learn and master your strategy, but once this is done there really is no point in sitting in front of your computer for hours trying to “figure out” what is going to happen….because you can’t “figure it out”, all you can do is master your forex strategy, develop a plan and routine around it, and follow it with discipline.

Also, many traders try trading 15 different trading patterns or setups or who knows what else. My price action strategies are effective yet concise; my setups condense many redundant candlestick patterns into a handful of powerful price action strategies that are easy to learn and to trade. If you look at any candlestick book you will soon realize many of the patterns are very similar and this tends to confuse traders, I have eliminated this problem with the way I teach price action. It helps to eliminate trade frequency / over-trading by focusing your attention to a more refined set of trading strategies, instead of spreading your focus out over too wide a spectrum.

• You can control yourself, not the market…

Simply put; over-traders are trying to control the market…you need to honestly stop and ask yourself if you think you feel like you are trying to control the market. Once you realize and fully ACCEPT that you really have NO control over the market, you will begin to think differently because you will realize you have to master a trading edge…and then you have to only trade when the market shows you your edge.

Forex Trade Management – What to do After You Enter a Trade

Forex trade management is arguably the most important aspect of success in the markets; it can literally make or break you. Once you learn a high probability Forex trading strategy like price action, you have to know how to manage your trades after they are live. Most traders simply ignore this essential piece of the Forex trading puzzle. By ignoring trade management or by simply not being aware of it, it is only a matter of time before you self-destruct in the market. A perfect price action trade setup can very easily turn into a losing one if you fail to manage it properly. So, without further ado, let’s dive into some practical Forex trade-management tips that you can put to work right away…

Forex Trade Management Mistakes…

Most trade management mistakes are a result of emotional decisions. How often have you found yourself entering a new position just because your current position is in profit? Or how about moving stop losses further from your entry because you are “certain” that price will turn around and move back in your favor? Have you ever moved your profit target further out as a trade moved into profit because you convinced yourself it would keep going because of XYZ reason? Maybe you take profits smaller than 2 times risk all the time or often get stopped out at breakeven only to see the market move on in your favor without you? These are all very common errors that traders make which are caused from poor or no planning and emotional decision making.

All of these errors seem pretty silly when you’re not in the market and thinking objectively. But, once you enter a trade, if you are not following a Forex trading plan and keeping track of your trades in a Forex trading journal, you are very likely to experience extreme temptation to make one or more of the above mentioned trade management mistakes. While trade management is not a concrete science or a mechanical process, there are some general guidelines you can follow and questions you can ask yourself before and during each trade which can help you manage your trades much more effectively…

trade management

Averaging In and Averaging Out…

Let’s discuss adding to positions and having multiple or partial positions. First off, the decision of whether or not to add to your initial position in a trade should largely be made before you enter. You need to analyze current market conditions and decide the most logical exit strategy and whether or not adding to your initial position is logical given current market conditions. If you are entering into a strong trending market, you may decide before hand that you will try a trailing stop and try to let the trade run and add to it at logical levels as it moves in your favor. The safest way to add to a position as it moves in your favor is to average in as the market moves in your favor. Here is an explanation of averaging in…

• Averaging in means that you use your open profit to “pay for” the next trade, it allows you to add to your position in a risk-free manner, but the sacrifice is that you increase your odds of getting stopped out at breakeven. It typically is only good to try this technique in a market that is in an obviously strong up or down trend. Forget about it in trading ranges or sluggish / slow-grinding markets. Ideally you want to wait for a price action setup to form at a key level after the market has pulled back a bit, a good example of this would be if your initial position moved in your favor and then pulled back to around 50% of the way back to your entry and then formed a pin bar at a key level, or some other price action setup at a key level; this would be a logical spot to add to a position by averaging in. You want to avoid adding to a position JUST because you are in profit, ideally you want a price action-based reason to add to an already winning position.

• Here is an example of averaging in: you sell the EUR/USD at 1.4500 with one mini-lot. The position quickly goes into profit by 100 pips and then forms a fakey setup in the direction of your initial position. Once your first position is up 100 pips and the market formed another price action setup giving you a reason to take on another position, you add a second mini-lot with a 50 pip stop loss, you then move down the stop loss on the first lot to lock in +50 pips. Now, if the second position turns around and hits your 50 pips stop loss, the first position will also stop you out for a 50 pips profit, stopping you at breakeven.

trading management

This is a risk-free way to add to a position that is moving strongly in your favor. However, always keep in mind it increases your odds of getting stopped out at breakeven and making no money at all, the payoff is that you could obviously make twice as much (or more) money. One important note of caution is to make sure you NEVER add to your initial position and double up your risk by not adjusting your stop on the first position. Averaging in means that you move your average entry price closer to the market price, if you double up your position and don’t trail up your stop loss, you open yourself up to substantial losses.

• Averaging out (Not A Good Idea In My Opinion), also known as “scaling out” is often talked about in the Forex trading community but it is almost always a bad idea. The main reason it is a bad is because of this; when you scale out of a position all you are doing is reducing position size as the trade moves into your favor. Sound illogical? It is. Think about it for a minute. Why would you purposely want to hold the smallest part of your position at the most profitable part of your trade? It is always better to either take full profit at a logical spot in the market, 2R multiple or greater, or trail your stop on the full position, than to try and take partial profit by scaling out. The bottom line on averaging out is that holding the least profitable part of your position at the most profitable part of the trade is not a financially wise or logical way to try and maximize your winners.

Trailing Stops… (Only Use them when the market is trending)

Trailing your stop as a trade moves in your favor can be a very good Forex trade management technique. However, trailing has limitations and you don’t want to just blindly trail your stop…

• Stop trailing techniques can take many different forms. A few of the more common ones including the following: trailing your stop up as a trade moves 1 times risk in your favor, thereby reducing your risk to 0 as a trade moves 1 times risk in your favor and subsequently locking in each 1R multiple of profit.

• The 50% trail technique is also popular, in this technique you trail your stop to 50% of the distance between your entry and the newest high / low as the market moves in your favor; thereby locking in profit as the market moves in your direction, this technique generally gives a trade more room to breathe but it can also give way a lot of open profit if a trade comes back beyond the 50% level and stops you out.

• Yet another popular trailing stop technique is to trail your stop just beyond the daily 8 or 21 day EMA. The 21 day EMA typically allows your trade to run for longer since it is less likely to get hit in a strong trending market than the 8 day EMA. The 8 day EMA trail would only be used in very quickly moving / trending markets. These are by no means the ONLY ways to trail your stop, they are just examples. There really is no right or wrong way to trail your stop loss, but just keep in mind it’s not the best strategy for every market condition. You generally only want to trail in strong trending markets.

• Breakeven stops are not always a great idea because the market can whipsaw around as everyone knows; stopping you out at breakeven only to move back in your favor. What you need to realize about trailing stops to breakeven is that it can cut down your long-term gains by limiting your potential profits. Yes, you will eliminate some potential losses by moving to breakeven, but you will also eliminate some even larger rewards.

As traders, we all need to accept the risk that is an inherent part of any trade, and if you are entering the market on a sound price action trading strategy, you want to give your edge time to play out, essentially you are interfering with this edge if you move to breakeven as soon as possible. I have personally found that viewing my trades as a win or lose proposition and being totally OK with the loss, is a better way to trade long term, because you will inevitably have some winners that more than make up for your losers, and you don’t want to cut back on these winners through breakeven trades. There are times when moving to breakeven is a good idea; in very volatile markets or if you have pre-planned to trail up your stop in a logical manner like we discussed above.

Getting the Most Out of Each Trade…

The goal of any successful Forex trader is to get the most out of every trade they enter. The way that you give yourself the best chance to get the most out of every trade is by behaving in a logical and consistent manner and pre-planning all aspects of your Forex trade management.

There is a fine line between being a trader who lives in hope and being a trader who accepts the reality of the market by taking what the market offers them. Before you get into a trade you need to ask the question, “how far do I realistically think this market can move before a substantial correction occurs?” Once you master price action trading and learn to read the levels and dynamics in the market, you will be able to make a pretty accurate estimation of the potential of any setup before you enter. And keep in mind you are ALWAYS LESS EMOTIONAL before you enter a trade than at any time during it. So, you have to assume that long-term, you are going to get the most out of every trade by managing it as much as you can before you enter it, rather than trying to manage it “on the fly”.

Listen to the signal and the market conditions; if there’s a price action setup at a clean breakout level or an obvious trend with strong momentum, trailing your stop into a 1 to 4 winner may have its reward. However, in a more congested or range-bound “not-so-sure” market situation, it’s not a good idea to pray and hope, trying to milk every last dollar out of a trade. So you see, there is a certain amount of discretion involved in trade management, it’s most important to read the market conditions before you enter a trade and decide how best to manage the trade at that time while leaving open the possibility of adjusting your exit strategy if any obvious reversal signals occur in the course of the trade or if the market conditions change drastically. However, that said, it’s almost always better to plan everything beforehand and then set and forget your Forex trades. Trading in this way allows you to see how your trading edge plays out over the long-term with no “outside” interference, and it prevents you from trying to force your will on the uncontrollable market.

Why You Need to Learn to Lose Properly to Win at Forex Trading

I know it sounds cliché, but losing truly is part of winning, especially in trading. If you want to become a complete trader who truly knows how to trade properly, you must learn how to lose properly in addition to actually learning how to trade.

I know this isn’t perhaps a ‘fun’ topic to discuss, and you may not even want to read this article, but I promise you that is a huge mistake. You simply will never make money as a trader if you don’t understand the importance of losing properly in the market and how to do it.

So, for those of you who are looking for an ‘easy fix’ or ‘fast money’ without any losses, you may as well stop reading now. For the rest of you who truly want to have a chance of making consistent money trading the markets, read on…

Prime your brain for losing properly…

All too often, I see beginning traders trying to avoid losses in a number of different ways. It seems that people are pre-wired by nature to try and avoid losses, it’s a normal tendency. But, when it comes to trading, this pre-wired trait does us significant damage and will even result in blown out trading accounts and irreversible damage, if you allow it to.

Unfortunately, losses are part of trading, if they weren’t, everyone on Earth would be a billionaire, and we all know that isn’t possible. The simple reality of trading, is that you are going to have losing trades one way or another. If you don’t take predefined, calculated losses, you are going to take big, potentially account-blowing losses eventually. Remember; you can delay losses, but you cannot avoid them altogether, and there is typically a direct correlation between how long you delay a loss and how big it becomes.

As a trader, you need to simply view losses as a ‘cost’ of doing business in the market. Any business has costs that need to be overcome in order to turn a profit. If you own a restaurant you have operating costs like food, labour, rent, utilities, book keeping, etc. If your revenue surpasses all of these costs, you will turn a profit, if not, you lose money.

So, in trading, your costs are losing trades, broker fees / commissions and perhaps any equipment costs like a laptop etc. If you start viewing losing trades as just a part of the costs of trading, you will begin to shift your thinking from ‘trying to avoid losses’ into trying to MANAGE losses.

Why you need to learn to lose properly

By learning to lose properly you will be learning to control your losses below a predefined dollar amount per trade; the trade’s ‘R value’. The great thing is that YOU decide how much money you risk on any one trade, so that ability gives you the power to eliminate any ‘surprises’ and thus any emotion from your losses in the market.

Traders experience pain and frustration from losers for two reasons:

  1. They ‘expect’ to win on a trade but instead they lose.
  2. They lose more money than they are emotionally prepared to lose per trade.

Luckily for you, these two things are very easy to fix if you’re ready to be honest with yourself and face reality. To manage your expectations of a trade, you simply have to understand that any one trade can be a loser and that you never can know ‘for sure’ which execution of your trading edge will be a winner and which will be a loser. Thus, you should never ‘expect’ to win any given trade, no matter how ‘good’ it looks.

For the exact reason just discussed, you should never risk more money on any given trade than you are totally emotionally / mentally OK with potentially losing. That is to say, because you can’t know for sure WHICH trade will win and which trade will lose beforehand, you simply cannot go jacking up your risk beyond levels you aren’t totally emotionally / mentally Ok with losing. IF you do it anyways, it’s your fault you lost more than you’re OK with and all of the emotional trading mistakes you make in the wake of that mistake are your fault and yours alone.

The take away from all this, is the following: In order to lose properly you have to first prime your trading mindset to shift how you think about losses. You have to shift from trying to avoid losses to trying to accept them and learn how to manage them. You have to shift from expecting to win every trade, to remembering that you won’t win every trade no matter what, and you don’t know which ones you will win and which ones you will lose, so have no expectations and don’t ever risk more than you are OK with potentially losing on any one trade.

success

How to lose properly

OK, so you’ve read the above section and you have accepted the nature of trading for what it is; a random distribution of winning and losing trades.

Now, let’s discuss in 5 simple steps how you can lose properly on any given trade that you take:

Step 1:

The first step to losing properly (as discussed in the above section) is accepting that you will have losing trades no matter what. Once you accept this, you can move on to the next step, which is about devising a plan to minimize your losses as much as possible.

Step 2:

Next, determine the dollar amount or R value you are comfortable with potentially losing on any one trade. As I’ve written about before, we do not measure risk in pips or percentages, we measure it in dollars or pounds, euros, etc.

Step 3:

Now, you need to calculate your position size on the trade. You do this by first finding the best place to put the stop loss, and then you figure out how many lots you can trade so as to not exceed your predetermined R value on the trade. Remember to place your stop loss based on surrounding market structure (price action / key levels) not on greed or emotion.

Step 4:

Set and forget the trade. After you have set the trade up and input all the parameters: entry, exit (stop loss and profit target) and position size, it’s time to forget about the trade for a while. One of the biggest steps to learning to lose properly is simply not interfering with your trades. Most of the time, simply removing yourself from the equation after your trade is live, is the best idea, and for all beginners it’s what I recommend.

Step 5:

Don’t try to avoid the loss. This is where psychology comes in and can mess you up. You absolutely cannot make huge mistakes like moving your stop loss further away as price approaches it. You have to remember you can’t avoid the loss, eventually it will catch up to you, even if you happen to ‘avoid’ it this time, you will be building a bad habit that will eventually result in a huge account-ending loss. You’ve got to stay true to your strategy and remained disciplined and accept that the market will stop you out sometimes for your predetermined 1 R loss. As I discuss in this article on risk management, a successful trade exit can be either a winner or a predetermined loser. If you take that loser as you planned, that is still a successful exit, even though it’s a loss. Success is sticking to your plan and being disciplined.

Final thoughts on losing properly…

Please do not blow this lesson off, if you do, it will be the biggest mistake you make as a trader. You’ve got to put your ego and your desire to win every trade aside, because both of those things are only going to cause you to lose money in the market, and I know you don’t want to lose money.

Trading is difficult for most people because they cannot come to grips with the FACT that they are going to have losing trades as well as winning trades. Most people screw up the losing trades by trying to avoid them, and by doing this they create a ‘monster’. This monster is bad trading habits that ultimately lead to an account-destroying loss.

The only way to win at trading is to control and manage your losses so that when you do have winners, they will be able to easily offset any recent losers you’ve had and then some, leaving you with profit. Remember, it’s just like owning a business; your revenue must exceed your costs to make a profit.

10 Ways to Improve Your Forex Trading Routine

If your current trading routine consists of things like habitually checking your smartphone to see where your current trade is at whilst you down a coffee with 2 shots of espresso in it to ‘compensate’ for the 5 hours of sleep you got last night, this article is for you.

Just because you’re current trading routine, or lack thereof, is more of a constant state of confusion and frustration than an actual routine, doesn’t mean you can’t fix it and get on the path to trading success. The tips below will help you build or tweak your trading routine so that you can trade from the peaceful yet confident mindset required for profitable trading…

1. Get at least 7 hours of quality sleep a night

Success begins with proper sleep. As discussed on the page Understanding Sleep on the NINDS website (National Institute of Neurological Disorders and Stroke), adults need between 7 to 8 hours of sleep per night to function properly the next day. You cannot ‘compensate’ for lost sleep via caffeine or any other means; your body will eventually force you to catch up on lost sleep and the time you spend in a sleep deficit will be time spent with your cognitive abilities impaired and running far below their peak.

Needless to say, trying to trade or analyse the market and adhere to your trading plan whilst in a sleep deficit, is just not going to work. Perhaps the first and most important way to ensure a proper trading routine is by making sure you get at least 7 hours of sleep per night.

  • Don’t drink coffee or other caffeinated beverages past mid-afternoon. Try tea instead.
  • Don’t stay up late because you think you can sleep-in the next day. Research proves our bodies function the best when we go to bed with the sun and wake up with the sun. This means going to bed early and waking up early.
  • Create a proper sleeping environment. Typically, this means a room that is cool (i.e. not too hot), dark and quiet.

2. Start your day with a healthy breakfast

I sometimes hear people say, “I don’t have time for breakfast” or “I don’t eat breakfast”, and I immediately feel sorry for them because they simply don’t know what the science says about that.

Breakfast, as the old saying goes, is the most important meal of the day. You just woke up from sleeping (hopefully 7 to 8 hours) and your body is depleted of the fuel it needs to operate properly. Make a point of having a healthy breakfast each morning; think protein, whole grains and some fruit…a Pop-Tart is obviously not what your brain and body need to function effectively and efficiently.

Drink a huge glass of water as soon as you wake up. I drink a lot of water throughout the day and I find that most people I know don’t do this. Drinking water keeps you hydrated and also helps control your appetite in between meals, and since your body is mostly water it only makes sense that you should drink that more than any other beverage.

3. Make exercise a habit

Regular exercise is basically the key to being motivated, alert and focused on everything in your life, including your trading. I personally notice a huge difference in how I feel when I don’t exercise compared to when I have been exercising regularly. Exercise keeps us feeling good both physically and mentally and this is obviously critical for proper trading habits and performance.

It can be tough to keep a consistent workout routine, but I know you know how good it feels to be full of energy and healthy, so the rewards are there to reinforce the action, you just have to get started.

Getting started is often the hardest part of anything in life, and that’s definitely true with exercise. Just sit yourself down and write out a list of all the things in your life that will be significantly improved with regular exercise, and make sure you add ‘trading performance’ to that list. Regular exercise will keep you focused and on-point, it also helps you sleep soundly at night, which as discussed above, is critical for proper cognitive function which obviously is critical for trading success.

improve trading routine

4. Have hobbies / social life (avoid becoming a trading addict)

One thing you don’t want to turn into is a trading recluse. You don’t want to be that guy sitting in his underwear in front of his charts, hoping his trades move in his favour and letting every win or loss influence his happiness.

Trading is a way to potentially improve your life, but it shouldn’t be your life. In order to succeed at trading, you need to have outside interests so that you are distracted from over-analysing the market and also so that you feel happy and confident.

If you don’t have any hobbies currently, then find some. Join some clubs, start working out, etc. Even if your hobby is simply hanging out with your family, that’s fine, just don’t be ‘that guy’ sitting in front of his charts for hours on end, because I promise you that’s not good for you or your trading.

5. Start your trading day the night or week before

Make sure you plan out the week’s key chart levels at the beginning of the week. Make some notes about trend, your bias, potential trade setups you see and anything else…as I tell my students, you should make your own market commentary. Make it a part of your trading routine and it will pay off because you’ll have an on-going ‘story’ of where the market has been, what it’s doing and what it might do in the future.

As the famous French microbiologist Louis Pasteur once said, “Chance favours the prepared mind”.

6. Think positive

A positive mindset is important to maintaining discipline and sticking to a trading routine. You can’t get too down after a losing trade (or too up after a winning trade), you need to stay confident and motivated. Take a long-term outlook in regards to your trading and know that your success or failure isn’t determined by one trade or even one month in the market. It takes a large series of trades, typically over a year or more, to really see what your trading performance is. That means you have to stick to your trading strategy and trading plan over that series of trades to really see it working for you.

7. Master your trading strategy

This may seem obvious, but if you haven’t mastered your trading strategy yet, or if you don’t have a trading strategy, you can’t build a trading routine. Many traders get started on the wrong track because they don’t really have a defined trading method yet, instead, they have a hodgepodge of different methods and trading ‘tips’ they’ve read here and there, all mashed up into one confusing thing they ‘think’ is a trading strategy.

You need a trading strategy that you can learn and master and that makes sense and is simple. My price action strategy is perfect to build a method around because it is an easy to learn trading method yet highly effective and you won’t need any external influences or factors; it’s a self-contained method.

8. Learn to love the discipline of routine

Discipline, routine and patience are things people normally view as ‘boring’ or unexciting, but they shouldn’t be viewed that way at all, especially in regards to trading. You have to understand and accept that these things are how you make money in the market. Once you view them in the light of, ‘discipline and routine are profitable and rewarding’, they will take on a different meaning to you.

One of the biggest problems that traders face, is that they are thinking inverse to how they should be about trading. Meaning, they view being in the market and actively thinking about it all the time and absorbing more and more market information as something that will help them achieve consistent profitability. In reality, and I as I explained here, this is not the case at all. You’ve got to view not being in the market and not interfering with live trades as profitable and highly-valuable situations.

Eventually, when you change your thinking to agree with this reality, you will find yourself loving the discipline, patience and routine of being a successful trader.

9. Think ‘simple’

I am not asking you to think ‘simply’ here, I am asking you to remember that simplicity in all aspects if your trading is key. My article on minimalism in trading will explain this more in-depth. But, essentially, trading is something that is so easily over-complicated by people, that you need to simplify all aspects of it so that you don’t fall prey to over-analysis and over-complication of it.

Strip your charts of all indicators, learn to trade price actionsimplify your trading office (you don’t need 3 monitors) and simplify your trading process. When I say “think simple” I am saying, remember that simple is better in regards to trading, I am not asking you to be ignorant. On the contrary, to trade in a simplistic manner and to understand that less is more in trading and trading in-line with that belief, requires a very high form of intellect and self-reflection.

10. Get help from other traders

Learning the routines and approaches of other traders is an invaluable learning tool. Other people have succeeded at trading before you and many people who may not be successful yet at trading can still teach you a lot especially if you’re a beginner. Mistakes can be avoided and you can learn much faster if you get help from other traders or a trading mentor.

Remember; trading shouldn’t be some random event with no structure or solid approach and routine behind it, and if you make it into that you will end up gambling all your money away in the market. You need to develop your own trading routine that fits with your schedule and personality and then stick to that trading routine with ice-cold discipline so that you can see it work in your favour over a sample size of trades so that you have an opportunity to make money.

Forex Trading Plan – Why You Need A Plan & How to Make One

Develop your own Forex trading plan..

Having a Forex trading plan is one of the most important pieces of the puzzle of becoming a consistently profitable Forex trader. Yet for many traders, creating a Forex trading plan can seem like something of a mystery, or perhaps something that they “will do eventually”

It is this lazy type of thinking that gets many traders into trouble and causes them to blow out trading accounts. Success in the markets is a function of discipline, and most people simply do not have enough self-discipline to determine if they are trading emotionally or objectively. This is where having a defined forex trading plan comes in; a trading plan will act as a guide which will keep you on the disciplined trading path.

Having a written out pre-defined trading plan means you are making an effort to hold yourself accountable to something, this is necessary to forex trading success because there is no one to be accountable to as a trader. You have only yourself to be accountable to when trading the markets and it can be extremely difficult to do the BEST THING FOR YOUR TRADING ACCOUNT when it goes against everything you FEEL like you want to do. This is the entire point of having a forex trading plan; to have a physical reminder of what the best thing for your trading account is at any given time…

The more you push and struggle by over-analyzing market variables the more your trading account is going to suffer, this is one of the biggest psychological paradoxes and hurdles that traders need to overcome before they can realize their full potential as market technicians. This fact is directly related to the concept that patience in Forex trading is rewarded by the market. Patience is one of the best and most important virtues that any forex trader can have. Being patient and waiting for only the “best” price action setups will greatly improve not only your win rate but also your confidence, because when you are trading with a high accuracy you are naturally going to boost your confidence.

This is all well and fine as long as you can manage to maintain your patience as your winning percentage improves. This may seem a bit counter-intuitive at first but it actually is one of the biggest reasons that many traders fail to make money consistently and end up repeating the same cycle of boom and bust in the market. The psychology behind this process revolves around the feeling of euphoria or over-confidence that often hits traders as they become more accurate in their trades, which is almost always a result of having patience long enough to wait for a string of high-quality setups.

Being able to recognize this feeling of euphoria or over-confidence and calmly and consciously over-ride it by walking away from your trade station for a period of time is the best medicine to fix this emotional trading mistake that so many traders make. There are a number of other strategies you can use to remain consciously aware of the potential of euphoria to sabotage all your trading success. If you need to make note cards and post them on your trading desk that say things like, “Be aware of euphoria after winning trades”, or “Don’t stop being patient just because I had a winning trade”, than by all means do it. The period right after a winning trade or a series of winning trades is the exact point in time that separates the amateur traders from the pros. Pro traders are always consciously aware of how they are feeling and whether or not their emotions are influencing their trading activities.

trading plan

One of the best ways to not let emotions influence your trading activities is to have a defined trading plan that describes in concrete terms what you will do in any given market scenario. Many traders do not attempt to have a trading plan because they aren’t really sure where to begin or how to write one. It really does not need to be extremely long or complicated to be effective. Essentially the point of a trading plan is to keep you honest with yourself because if you don’t do it no one else is going to. And this is exactly the problem most traders have in the markets, there is no one to be accountable too if you lose all your money, except yourself. You aren’t trading for your boss or someone else, unless you are a prop trader, but most traders don’t make it that far because they cannot even be accountable to themselves first.

So what exactly does a high quality trading plan need to contain? Well it doesn’t need to be super complicated, as stated previously, the MOST important aspect of an effective forex trading plan is that you can somehow force yourself to ACTUALLY USE IT. Tape it up somewhere that you will see it every time you trade, read it every day. I have personally written trading plans in a note book only to never open the note book again. Don’t do this, don’t write it down in a note book, type it up on your computer and print it out if you need to, then place it on your trading desk, hang it on your fridge, whatever it takes so that you READ IT EVERYDAY.

What are the critical elements of a trading plan?

1. Define your entry strategy. Whether you are entering the market off a reversal pin bar setup in the direction of the trend or off a bounce of a moving average, whatever you use to enter with make sure you can define it and that you know what constitutes a HIGHQUALITY or PERFECT A+ entry from one that is lesser in quality or perhaps a B or C entry.

2. Determine the risk to reward scenario on any potential trade setup before entering it. Also, make sure you have a thorough understanding of Forex position sizing.

3. Adjust the position sizeon the trade to meet the necessary stop-loss distance, NEVER adjust the stop-loss to meet a desired position size, this = GREED.

4. Know what your exit strategy is BEFORE entering the trade, if you are not exiting on a pre-set risk reward setup, than make certain you don’t tell yourself that you will just “figure it out” as the trade unfolds, this never works. You are never going to be more objective than when you are not in a trade, therefore this is the best time to plan out all trading parameters.

5. After the trade is over, make sure your trading plan includes an activity or some mandatory thing that you do after you have exited a trade, whether it was a winner or a loser. The period of time right after a trade is one of the most, if not the most, emotionally sensitive period for traders. Feelings of revenge, frustration, and disappointment can cause you to jump right back into the market on a whim, with no real setup present, obviously this is likely to cause you even further psychological harm because you will likely lose even more money, and the cycle will continue.

Winning trades also need a period of inactivity once they are closed out. It is very easy to feel over-confident or “in control” of the market after a string of winning trades. What happens next is that traders often enter a trade on a whim again (see the pattern here) but this time they are at even greater risk because they are feeling euphoric and they decide to risk more than usual, only to see all their recent profits evaporate in the blink of an eye.

This article has supplied you with the reasons WHY you need to have a Forex trading plan and some very good ideas about what you need to include in your trading plan. There is no concrete way to make a good trading plan. Just remember that the whole point of a trading plan is to keep you accountable and to keep you on the track of objective thinking. You should NEVER make trading decisions while you have a trade open, as MOST of the time this will back-fire on you. The best time to make your trading decisions is when you are not in any trades, this is done by creating a logical Forex trading plan that acts as your guide to the market, and this is really the only effective way to consciously make an effort at eliminating emotional trading mistakes.

Learning Price Action – The Key to Your Forex Trading Success

The ability to read and make sense of the price dynamics that occur on a “naked” price chart everyday in the Forex market is a critical component of becoming a profitable trader. Price is the main variable involved in all financial markets, so it is a curious notion that so many trading strategies and systems floating around the internet seem to focus on everything BUT price.

Here at Learn To Trade The Market, I teach traders how to read the natural price action of a market, and this is a skill that is a prerequisite for developing yourself into a consistently profitable trader, no matter what trading strategy or system you ultimately end up using.

Price action trading helps you become confident in your trading ability

Learning to trade the market with price action strategies allows you to make use of the natural ebb and flow of the market in a way that is not confusing or secondary like trading with indicators or “Forex robots”. As a trader, you want to develop your chart reading skills so that you can confidently trade what you see, not what you think. When you learn how to read the price action of an uninhibited price chart you will develop this confidence  because you know you are basing your trading decisions off the “core” data (price action) of the market, instead of a delayed and vague representation of price action. Traders who spend hours trying to interpret lagging indicators or who spend tons of money on over-hyped trading software, quickly find out that these approaches are simply well-marketed techniques that look pretty but are largely ineffective and more confusing than anything else.

Trading with price action gives you a solid foundation to build your overall trading strategy on, since you know what you are looking for and the method is not confusing or secondary you can quickly develop confidence in your trades. This is a key distinction between price action trading strategies and indicator-based methods, and it’s one of the reasons why trading with indicators destroys Forex trading success. Indicators and trading software make it really hard to become confident since you are always trying to figure out what the indicators are telling you (they often contradict one another), and you probably have no idea who or what is behind a piece of Forex trading software.

Knowledge of price action trading will ONLY make you a BETTER trader

Even if you don’t end up using price action as your primary trading strategy or system, an intimate knowledge of price action will make ANY other strategy or system much more effective for you. Learning price action can ONLY help you become a better trader, it can never hurt you like many other strategies and systems can by confusing you and clouding up your mind.

No matter what trading strategy or system you are currently using or end up using; knowing how to spot high-probability price action setups will make that strategy much more effective. Obviously, I prefer to trade off price action alone, and I teach my member’s how to trade off the same simple price action strategies that I use, but some of you will inevitably go on to incorporate other methods and techniques into your trading. This is fine, but just keep in mind that no matter what road you go down in the markets, obtaining a thorough and comprehensive price action trading education is only going to help you in understanding price movement and overall market mechanics.

Knowledge of price action trading

Price action helps you develop your discretionary trading skills

If you want to sum up the difference between professional traders and amateur traders in once sentence, this is a good way to put it; “Professional traders know when to trade and when NOT to trade, while amateur traders clearly have not developed this skill yet”.

No matter what you read on the internet or elsewhere, developing your natural trading “intuition” or “gut” trading instinct is very important to your long-term trading success. This is the discretionary trading skill that is largely responsible for separating the winners from the losers. Price action helps you develop this trading instinct because learning to spot and trade high-probability price action setups allows you to recognize and anticipate market patterns and movements with a high degree of accuracy. This process of developing an effective “gut” trading feel sometimes takes many years for traders to develop, and in my opinion the best way to develop it as quickly as possible is by learning to trade with price action, it certainly has worked for me.

Learning how to trade with price action simplifies all aspects of trading

It’s very important that you have a strategy like price action which is simple to understand and implement, because this simplicity will make it much easier for you to adhere to your trading plan which will in turn keep you focused and on the track to Forex trading success.

Price action lends itself very well to a trader’s check list or Forex trading plan. Once you have mastered the price action strategies that I teach, you can very quickly conclude from your trading checklist or trading plan whether or not various elements of a high-probability price action setup are present and if the confluence requirements are met.

The simplicity that is an inherent part of price action trading also contributes to developing the type of calm and unemotional mindset that successful trading requires. By eliminating the element of messy and confusing indicators all over your charts you can greatly reduce the mental stress and frustration you experience every time you interact with the market. Having the correct Forex trading mindset is extremely important to developing into a consistently profitable trader, and price action can help eliminate emotional trading problems.

You NEED to understand price action!

In conclusion, every trader deals with price movement as they trade the market, no matter what market or what strategy they trade. So, if you truly want to become a profitable trader, you simply have to understand price dynamics and how price ebbs and flows and interacts with levels in the market, there is just no way around it. I am not saying that price action trading is the ONLY way to trade the market, but I AM saying that understanding price action and how to use it to your advantage IS necessary to become a profitable trader. I have personally found that pure price action trading is the best way for me to trade, and many of my member’s have as well.

Playing The Odds In Forex Trading

This article is written based on my personal experiences and reflects exactly how I think about and approach the market on a day to day basis. Here’s a close look into how my mind actually thinks every day when I open up my trading screens…

Trading is all about playing the odds. You aren’t going to win every trade; an important lesson to learn early-on in your trading career. But by playing the odds, or trading the odds, you can increases your chances of making money. Playing the odds takes discipline, and it involves patience, but if you want to make money in the market, you’ll have to learn these things.

By understanding things like market bias, key chart levels, stop loss placement and having a mastery of your trading method, you can increase your chances of trading success by trading with the odds in your favor…

Develop a ‘feel’ for the chart

You’ve got to first develop a feel for a chart by developing your bias for that chart. Once you’ve done this, you stick with that bias until it stops working.

Your aim is to develop a deeper emotional connection with the chart, then your bias will come to the surface and you will know whether you should be looking to buy or sell. Once you’ve developed your bias, you can trade the odds by sticking to that side of the market until it clearly begins to change.

If a market continues dying, e.g. the recent euro / dollar, this is when you continue on the short side; this is playing with the odds in your favor. You’ve got an edge, and that edge is basically that the market is going lower, don’t fight it. Your bias in a downtrend, will generally be selling into strength, and your bias in an uptrend will be buying into weakness.

eur / usd

Playing the odds from key chart levels

Putting the odds in our favor in trading means not only developing a bias and trading with that bias, but also understanding key chart levels and how they allow us to play the odds.

When a market approaches a key chart level, it provides us with a very good entry opportunity and a very good risk reward potential. Thus, we are increasing our chances of making money by waiting for such an entry.

Think about the recent 105.50 key level on the USDJPY chart (see chart below). This was a major level within the existing / overall uptrend in the market. By looking for a buy entry from that level or near it, you were playing the odds. You’ve got a key level that you’ve identified, and everyone is selling into it as price retraces down, but this is your ideal chance to buy. People are selling into a major level and the underlying / longer-term momentum is up. This means, by buying at that level or near it, you’re entering the market at your opponents (sellers) worst position, you are taking on their risk.

The risk reward is very favorable at key levels like this because you’re playing the odds. If price bounces from that level, you’ve got huge upside potential, i.e., a small relative risk for a large possible reward.

key chart

Wider stops help tip the odds in your favor

Wider than normal stops are something that can help tip the odds in your favor. Many traders are guilty of trading with too small of stop losses, mainly out of greed, because they want to trade a bigger lot size. However, trading with too tight of stops has the opposite effect from what the trader wants; it causes them to lose money because they get stopped out more often.

A slightly wider than normal stop loss helps you stay in a trade longer and lets your edge play out. This is contrast to a guy who is risking 20 or 50 pips on every trade; these stops are going to get ‘picked off’ often, right before the market continues on in your direction (without you on board). For most traders, trading with 20 to 50 pip stop losses is like playing the blackjack table at a casino, i.e., it’s gambling. Consider that the AUDUSD or the EURUSD moves around 100 pips a day on average…having a stop loss of less than 50 pips is a bad idea.

Know your ‘bag of tricks’ and trust them well

Finally, trading with the odds in your favor means you know your ‘bag of tricks’ inside and out and you trust them well. By this I mean, you have mastered your trading strategy and you don’t second guess it.

By knowing what my trading edge is (price action) and only trading when it is present in the market, I am trading with the odds in my favor. Trading when you’re edge is not present (over-trading) or not having mastered your trading method, is trading against the odds, obviously not what you want to do with your hard-earned money on the line.

We’ve called the market very well in our market commentaries, and it’s no secret that we use the same general formula in this lesson; simply by playing the odds and putting it all together, we have a complete plan of action to tackle the market each day and we know we are playing the odds and those odds are in our favor as long as we are consistent with our approach.

Whilst price action analysis is a way to trade, it’s one thing to call yourself a price action trader and it’s another thing to actually trade like a price action trader.