The concept of Forex trading
- Directional Forex Trading is the art of using price movements in inter bank Foreign Exchange or capital markets to make profit. Traders may be involved in a trade for 1 second or 1 decade (10 years), depending on their trading method and trading plan.
- Our focus is the short-term view of price movement from point X to point Y. By ‘short-term’, I don’t mean ‘day-trading’ or ‘scalping’, as that is not our focus at all here. When I say “short-term view”, I mean we are holding trades anywhere from a few hours to a few days on average, possibly a week or two if we hit upon a very strong trending market.
- To profit from market movements, we must predict price direction correctly, execute a trade entry, and then manage the position between our predetermined stop loss level and desired take profit level.
- To win over the long-run, traders must develop a trading plan with a statistical edge. Price action, market trends, and support / resistance become our trading primary tools in creating this edge.
- Every trade setup carries a unique degree of risk versus reward. The cliche – “Make your winners larger than your losers” is the most obvious road to wealth. However, traders often lose focus, and they forget what each trade can realistically offer them in terms of profit. Markets do not move in straight lines, yet traders hold on to winners way too long, expecting some giant winner on every trade, but soon they see these profits evaporate faster than they came.
- You must lose your greedy attitude and set your trading guidelines! My trading setups aim to deliver approximately 2 to 4 times risk, and I am happy to take that kind of profit on any trade. This means I can win 1 in every 3 or 4 trades and still make decent profits over a sample of trades.
- When trading Forex (or any market), we are effectively running a company. Trading Losses are the cost of business, wins are our revenue, and our profit is the difference between our winners and losers, as well as any fees such as spreads and commissions. Worst case scenario, on a $10,000 size account, we have to run this company at 500% per annul just to make a living! Difficult you ask? YES!
Initiation Comes Through Experience
- Becoming a great trader is like playing a difficult sport, such examples would be tennis, soccer or basketball. Learning the rules is easy, but as we all know, playing the game to win is difficult and requires training and experience to develop skills and intuition over time. The common element in most successful athletes, is that they start out very early in life, and the blue print for success slowly plants itself in he/she’s brain over time.
Some train hard for years to master a sport, many fail, and a small percentage will progress to some advanced level, some will even turn pro. Those that fail simply don’t have what it takes, they find other dreams and aspirations and move on with their lives.
The exact same logic applies to trading. Some make it, some don’t, some private traders earn $1000 to $100,000 per week, and some may even earn $100 million per year from this business. Some lose money for years on end and finally give up, which is a wise choice for them.
- I am one of the lucky ones, I started early on at 15 years of age, and whilst I don’t make millions of dollars per year (yet), I do make a very good living. I make money because I can read price action and read the charts correctly, and I am very patient and disciplined. I truly believe this is a measure of experience and intuition. I was taught the basic strategies, but the way I can filter trades and understand what’s happening in front of me is something I learned from the ‘school of hard knocks’, and this is something that comes only through experience and screen time.
- There are obviously some very basic strategies to help play this game we call trading. Some will play it socially, some will move on to an advanced level, some will perfect the art and turn into professional traders.
- Remember, a solid trading judgment is the sum of years of screen time and trading experiences. Most of our subconscious learning is taught to us by trading live price action, listening to trading mentors, or reading about various trading concepts like the ones you are about to learn in this course.
A Robust Winning Edge
- Traders should use entry methods which have a robust edge, even if the winning edge is small, we favor using an entry mechanism that has a tendency to repeat itself, as opposed to entering randomly.
- A robust edge is a proven market event, it’s a repetitive price event in the market which acts as a “signal” for the trader to pay closer attention and create an order in the market.
- Depending on our risk / reward ratio, the ‘edge’ could be as low as winning just 25% percent of all trades. The higher the risk / reward ratio, the lower the required win rate. The lower the risk / reward ratio, the higher the required win rate.
Methods which carry a slight winning edge in the market, combined with a high risk vs. reward, will keep a trader in the game over a large series of trades.
- A robust edge is not the only ingredient in a trading plan, there are naturally many other key factors which go hand-in-hand when each trade is placed, i.e. position size.
- All traders who fail in the forex market are no better than a gambler at a casino. These ever persistent ‘punters’ trade with real money, they ride the emotions, the highs and lows, similar to that of a black jack player. They lack knowledge and certainly have no trading method or edge that they’ve mastered. There is no plan, and no money management or staking model, and these “thrill seekers” certainly all lack the correct mindset to become successful. You MUST do the opposite of this large crowd of losers if you want to win.
- Those traders who truly believe trading is a mechanical process are fooling themselves. You must now ground yourself in reality. You bought this course to learn “how it really is”.
- You must learn to read charts, study price action, and above all, you must learn to act on price action signals without emotion.
No Magic Here
- If you’re lucky enough to find some kind of mechanical forex systems that work for several months, most of the time, these models end up falling apart in the future for enough time to wipe novice traders out. This is why mechanical retail forex systems have no place in real world trading. They are useless at best.
Most educators of automatic trading systems teach nothing practical, they fill pages with ‘garbage’ to make a quick buck. They skip the very foundation of market analysis, they fail to teach methods that can be used in changing market conditions, and they fail to educate traders about price dynamics and price action…which is the very ‘heart and soul’ of a market.
When you seek a mentor, or a trading approach, you should not look for a ‘system’ which has fixed rules. All great traders use some form of discretion and gut feel. Don’t expect to make the same profitable trade tomorrow as you did today, because each day the market is different, no two setups are ever exactly the same.
- Trading logic remains the same, but people and markets are constantly changing. Be prepared to continue to learn each day, as well as adapt your approach to suit market conditions.
- If you’re truly still searching for some magical, concrete, systematic way to trade, you’re still in first gear. I need to get you to second gear, to move past being greedy and lazy-minded, and learn some real trading concepts that will help you profit in the market, long-term, not just for a day or a month.
- There is no short-cut to learning and mastering an effective trading strategy, there’s no ‘Holy Grail system’, and there is nothing completely automated which retail traders will ever be able to put to use for an affordable price. The large players will always hold the advantage, and our only chance is to learn how to ride the price movement these large players create.
- For lack of a better phrase, we must learn to ‘piggy back’ the big players, which we can do by reading the market’s price action.
Trading With the Odds in Your Favor
- Aligning market momentum and price action is a definable edge for professional traders.
- There is an old saying that professional traders miss half the great moves in the market, and I whole heatedly agree. You will not get on board every major move, just be happy to get on board a few a month or even every other month.
- I have come to the conclusion after 15 years in the market that although there are price action signals and trends occurring all the time, which often run opposite to one another, I can’t define my market edge by simply trading one entry condition or trigger. What I found is that ideally, I want to combine 2 parameters, often 3 or more, purely and simply because by using “confluence of signals” I can easily define an edge.
Key point: Confluence is where we use multiple factors, such as levels (support, resistance, 50% retrace levels, EMAs, etc.) trend bias, and candle signals to produce 1 complete trade setup entry condition.
- Over time, I have noted that an equal amount of price action signals will occur in random chart areas as well as in alignment with trends or horizontal levels.
However, I notice time and time again, my most profitable traders occur when I trade price action signals within very obvious trends, or from key areas in the market (with confluence). Early in my career I was obsessed with getting on every great move in the market, until one day I realized that I needed to develop stricter guidelines to trade by, even if that meant missing 5 to 10 trades per month!
- In summary, I define my edge in the market only after I see more than 1 of my factors of confluence align, enabling me to increase the odds of success. Furthermore, by doing this, I tend to find the market makes larger moves, because often, I am trading from major turning points, or within natural mid-term trends.
The Reality of Trading
- If good trading judgment is the key to success, but good trading judgment only comes after years of market experience, how can an aspiring trader like you hope to achieve success? I get this question often, and it’s a fair question…
I will say to you straight out, the truth is that all great traders must do the ‘hard yards’. Just as a toddler learns to walk, traders must learn to ‘walk’ in the markets, before they can ‘run’.
- One short-cut is naturally to find a mentor such as myself, as well as to continue to research price action trading strategies, and experience market behavior first-hand.
- Shorter time frames are the most volatile and unpredictable, thus , paper trading (demo trading) a 5 minute chart can be a quick learning tool, even if that means you’re learning “what not to do”, experience is experience, good or bad…(I don’t teach or trade short-term frames like the 5 minute chart, the point is that they can be quick learning tools of what not to do)
- In a nutshell, the journey to trading success is inescapably one of screen time and acquired market knowledge. The aim of this course is to guide you, to help you in your interpretation of the data in front of you. You must master the art of reading charts and price action.
- Whilst I can’t promise you success in trading, I sincerely believe that if you master the information in this course and continue your study and application of strategies pertaining to price action and trading from value in trends, your chances of making it to professional status will be increased 100 fold.
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