How To Trade Trends In Forex – A Complete Guide

We’ve all heard the saying “The trend is your friend”, and while it sounds nice it doesn’t really teach us anything about trading a trending market or how to identify one. In today’s lesson, I am going to give you guys some solid information on trend trading that you can begin using immediately. Today’s lesson is all about trading trending markets with price action, and we are going to talk about how to tell when a market is trending and how to take advantage of these trends.
I hope you guys pay close attention to today’s article and refer back to it when you have any questions about how to trade or identify a trending market. In fact, if you email me asking about trends…I will probably refer you to this article!
Let’s get started…

The first step: Learn to identify a trend with nothing but raw price action

As you probably already know, there are tons of different indicators that you can put on your charts to ‘help’ you identify a trending market and trade with it. Many traders spend countless hours and dollars on trend-following trading systems or on indicators that just end up confusing them and making the process of trend discovery a lot more difficult than it needs to be.
I have always been a strong proponent of visual observation of the raw price action of a market, as you probably know. I also believe that simply observing a market’s raw price action, from left to right, is the easiest and most effective way to identify a trend and to spot high-probability entries within it.
Let me make a quick note before we proceed: A trend is not actually a strategy by itself; it’s just an added point of confluence that increases the probability of a trade. However, just randomly jumping in with a trending market is not an edge or a strategy.
As a market moves higher or lower, its previous turning points, or swing points as I like to call them, become reference points that we can use to help us determine the trend of a market. The most basic way to identify a trend is to check and see if a market is making a pattern of higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend. This is just plain old visual observation of a market’s naturally occurring price action…no mumbo-jumbo trading systems or magic-bullets here. I’d like you guys to take a look at this simple diagram that I drew below; it shows us the basic idea of looking for higher highs (HH) and higher lows (HL) for uptrends and lower highs (LH) and lower lows (LL) for downtrends:
Note: each colored circle is highlighting what we would consider a ‘swing point’ in the market:


Thus, general observation of a market’s swing points is the first point of call in determining if a market is trending. If you do not see a pattern of HH HL or LH LL, but instead you see sideways price movement with no obvious general up or down direction to it, then you are probably looking at a range-bound market or one that is simply chopping back and forth.
Tip: You shouldn’t have to think too hard about whether a market is trending or not. Most traders make trend discovery WAY too difficult. If you take a common sense and patient approach, it’s usually fairly obvious if a market is trending or not just by looking at the raw price action of its chart, from left to right. Make sure you mark the swing points on your chart, as it will draw your attention to them and help you see if there’s a pattern of HH and HL or LH and LL, as discussed above.

Characteristics of trending markets

Trending markets tend to make strong moves in the direction of the trend followed by periods of consolidation or a counter-trend retrace before the next leg in the direction of the trend. You will notice this pattern happens in almost any trend you can find. Typically, what happens to many traders is that they will make some money during the periods of strong directional trend movement, but then they continue to trade as the market takes a breather from the trend and consolidates. It’s these periods when traders give up all of the gains they just made when the market was moving aggressively.
You need to learn to identify the different parts of a trend, this will help you avoid over-trading during the choppy / consolidation periods and will give you a better chance at profiting when the trend makes a strong move.
Here is an example of what I’m talking about:



In the diagram above, we can see that a trending market tends to move in spurts, moving in the direction of the trend and then stalling to take a breath before another leg in the direction of the trend. Now, all trends are obviously not exactly the same, but we do typically see the general pattern described above; a forceful move in the direction of the trend followed by a period of consolidation or a retracement in the opposite direction.
Now, these retraces are when we have the highest potential for a high probability entry within the trend. Often, a market will retrace to approximately the level of its previous swing point before the trend resumes. In an uptrend these swing points are support and in downtrends they are resistance. Look at the very first diagram in this article for a quick refresher on what I’m talking about. Also, let’s look at the chart we just looked at but this time with the support levels marked. These support levels resulted after the market began to retrace lower within the structure of the broader uptrend.
Note the ‘stepping’ pattern left behind by the swing points in this uptrend. As the market retraces back down to these ‘steps’ or support levels, we would focus our attention and watch for price action signals forming near these levels to rejoin the uptrend:



Note: These same principles apply in a down trending market but we would be looking for price action setups from resistance rather than support.
As we discussed previously, a trending market will tend to surge in one direction and then slow down and either consolidate in a sideways manner or retrace lower or higher, depending on what direction the dominant trend is. It is during these contraction or retrace moves that we can focus extra hard through our ‘sniper-scope’ and begin searching for high-probability price action trading strategies forming from previous swing points within the overall trend.

Trading from value in trends

My primary mission as a price action trader is to watch for obvious price action setups that form after a market retraces back to a confluent level in the market. This can be a swing point like we discussed above, a moving average level, or some other support or resistance level. Whatever the case, I am looking to trade from ‘value’ in a trending market. By value, I mean from an optimum point in the market that has proved significant before.
For example, in an uptrend I would consider ‘value’ to be support, since that is where the price of the market is likely to be seen as a good ‘value’ for the bulls, and thus they will tend to buy from that level and push the price higher. Whereas, in a downtrend, ‘value’ is seen at resistance, since the price has rotated higher within the broader downtrend; so it’s a good ‘value’ to sell from resistance in a downtrend. These rotations back to value points can also be called ‘trading from the mean’ or the ‘average’ price, this is why moving averages tend to act as dynamic support or resistance levels.
One tool we can use to find ‘value’ in a market is a moving average. I don’t use them all the time, but when I do I like to use the 8 and 21 day exponential moving averages. I use them as a general guide and a helper to find confluent points in a market. For example, often the 21 day EMA will align with a swing point in a trending market, this would be considered a confluent level since you have multiple factors lining up together. Then, if we see a price action signal there, we know we are seeing a setup form in a very high-probability area on the chart. See here:



Note: these moving averages should only be used as a ‘general guide’ and never as an actual signal (as in the old ‘moving average crossover signal’). We only use them as a helper to see dynamic support and resistance levels (to add confluence) and for trend direction. But just to be clear, our main focus is on visual observation of a market’s price action and levels, that is to say without any EMAs.

Don’t fall into the ‘breakout’ trap – Many amateur traders get stuck in a cycle of trying to trade breakouts all the time…this is not really an effective long-term strategy because the ‘big boys’ all know that amateurs are constantly trying to buy and sell breakouts. Instead, we want to enter closer to key market levels, swing points, EMA levels (confluent levels) in the market…always with confirmation from a price action signal. As a ‘regressive’ price action trader, we are looking to buy or sell from value within the trend…waiting for the inevitable pullback and then pouncing on an obvious price action signal if one forms.

Forex trends vs. other markets

One aspect of trend trading that I want to touch on briefly is that trends in Forex tend to differ from those in other markets, especially equities.
In Forex, bearish and bullish trends are typically equally as violent and potent…whereas in equity markets we tend to see slower moving price action in a bull market, along with lower volatility. Down-trending markets tend to be fast and volatile in equity markets. Forex trends tend to be the same in their volatility and price action whether the trend is up or down. The main reason is because it’s one currency against another in any given currency pair and this results in more balanced price movement.
Thus, in Forex, your trading strategy and plan will generally be the same for both up and down markets. Here’s an example of the EURAUD daily chart recently that shows just how consistent both down trends and up trends can be in this market…note how the volatility and speed of these trends were about the same:




In the equity markets, traders typically need to adjust their strategies or systems as a market moves from bull to bear or vice versa. But in Forex, whether you’re trading long or short, bull or bear, the volatility of a currency pair tends to say about the same. That’s not to say that volatility never changes in Forex, it just means that the particular direction of a Forex pair doesn’t have a very big impact on that pair’s volatility or price action, as it does in the equity markets for example.

Final notes on trading with trends:

Take advantage of trends when they happen – There is never anything concrete with trends…meaning you never know how long they will last for, so try to take advantage of them when they do occur. Markets typically only trend about 25 to 35% of the time, and the rest of the time they are range-bound or chopping in a sideways fashion. The trick is to learn how to identify a trending market so that you can get the most out of it and get on board as early as possible.
Counter-trend trading – Overall, trend trading should make up about 70% of the trades you take, and the other 30% might consist of counter-trend trades or trades in range-bound markets. It’s best to learn how to trade with near-term trend before you try trading counter-trend, because trading with the trend is naturally higher-probability than trading against it.
In conclusion, trend trading is perhaps the ‘easiest’ way to make money in the forex markets. Unfortunately, markets don’t trend all the time, and it’s the time in between trends that traders do the most damage to themselves. This damage is a result of not having the discipline to wait for high-probability setups to appear, and not being able to properly read a market’s price action to determine whether or not it’s trending.
I trust that today’s lesson has helped you get an idea of how to determine whether a market is trending or not and how to trade a trending market. Remember, there’s no ‘Holy-Grail’ for trend trading, but if you’re in doubt, the best thing to do is to just relax and take some time to visually observe the last few weeks of price data in a market…without indicators. This no-nonsense approach is hard to beat and will work if you know what you’re looking for.
Finally, I leave you with this little formula:
The Best Trades = Trend + Confluent level + Price action signal
I’ve touched on some topics that traders can use for short-term trend analysis today, and I expand on these topics in the members’ article section of my price action traders’ community. Trend following is a large part of my Price Action Forex Trading Course and of my general trading strategy. I’d really love to hear your feedback today, so please remember to leave your comments below & click the ‘like button’.
Good trading. mathew "learntotradethemarket"

The Minimalist Guide To Forex Trading & Life

The inspiration for today’s article comes from something I am currently experiencing in my personal life.  I recently sold my luxury house in Queensland Australia and am currently renting while my family and I decide where we really want to live. Our plans were to eradicate all assets and debt, as my wife and I are both quite young and with my profession as a trader and coach, I have the ability to be mobile. We decided that we wanted to try living a stripped down and nomadic lifestyle for a while and welcomed the freedom it promised.

However, this doesn’t mean all people will want to be nomadic and travel around the world living in different places. The lesson that I want to put forth today, is that as humans we tend to over-clutter our lives with addictions and materialism (houses, cars, so forth). Halfway through 2012 I said enough is enough and I set out to completely remove all clutter and unnecessary possessions, even small things. Basically, I wanted to be free of all these burdens…because I realized I had a bunch of stuff I didn’t need, and I felt it was holding me back. I had more than one car that I didn’t really need, I owned a house I wasn’t happy with and that was too big, etc. I just felt I had too many things that were cluttering my life and my mind; my goal was to set out to only have a suit case, a laptop, and my favorite book.

The reason I’m sharing this story with you, is because I believe that most of you out there can benefit from applying a similar logic to your life, i.e. de-cluttering, liquefy assets and removing debt.  People can interpret it however they want, but the core thing is to keep with you only what you absolutely need in an effort to save time, save money, remove stress, and more.

… So what the hell does this have to do with trading you ask?

What we are setting out to do today is to become ‘minimalists’ as applied to trading, and as we have discussed already, this can apply to other areas  of life too…getting rid of unnecessary things…all possessions that you don’t really need…all unnecessary emotional attachments to things, minimalism is almost a religion of sorts. Many of you know that I take a very stripped down and simple approach to trading the markets, and so if you think about the benefits of being a minimalist in everyday life, it really is no big surprise that it’s also the best way to trade the markets.
To find out more about “Minimalism” as defined by one of the blogs that I follow, click here.

Forget the stereotypical facade of a pro trader

The first step to becoming a minimalist trader is to lose the facade of the cliché trader with his lovely office, big wooden desk and several stacks of monitors with the latest trading software – you only need a laptop, FREE trading software (get it here), an effective forex trading strategy and your brain. The reality is that you do not need a big office, multiple monitors and an expensive data feed to be a successful trader.
The stereotypical facade of a “pro trader” is what many of us are addicted too…but it’s not reality…reality is a guy trading from a coffee shop on his PC.
Get rid of all the excess weight you have if you are still learning how to trade or you’re struggling to trade successfully. If you want to add a big trading desk with multiple monitors and all the bells and whistles after you become a successful trader, that’s OK. But don’t think you need to go out and drop 5 grand on your trading office in order to make money in the markets. Some of the best traders in the world just trade off a laptop. You don’t NEED an office with 3 computers or a fancy workstation.
I personally have gone from having a big trading office with multiple monitors back to an Ultra book PC and wireless internet, sometimes I even use my iPhone for my web connection…I realized my ego and greed took over before, and these things negatively impacted my trading.

Minimize what you put on your charts, maximize trading results

Unless this is your first time on this blog, you probably know that I teach what some might call a “minimalist” approach to trading. However, you might not know WHY I trade and teach this approach.
It usually takes every trader a certain amount of trial and error before they figure out that most of their trading mistakes resulted from ‘stupid’ things they did, and not necessarily from the trading method they were using. Most traders lose money because they make emotional trading mistakes; this is something most all of us can agree on.
However, the role that having tons of “crap” on your charts plays as a contributor to your trading problems, is often overlooked. Just as the materialist mentality of needing to buy more things to make us feel happy or fulfilled is a flawed mentality, so is the mentality that adding more technical indicators and analysis tools will somehow make you a better trader. One of the big secrets to success in all areas of life and indeed even to happiness is that less is often better. Just as having less material things in my life has significantly increased my peace of mind, bank account and time spent with my family, it can also help you to become a better person and trader.
I mentioned above that trader error is the main cause of losing money in the markets, not the particular trading method you use. However, most traders naturally assume that it’s their trading system or strategy to blame for their losses in the market. They then set out on a quest to find the ‘best’ trading method, adding indicators, Elliot Waves, super-turbo 5,000 trading robots, and everything else under the sun to their charts. This provides them with a false sense of security and hope for a while, until they realize it’s not doing anything to improve their trading results. The point here is that MORE IS NOT BETTER!
You see, as traders our trading mindset is the most important piece of the puzzle. However, the strategy or system that we use to trade with can and does have a profound effect on our trading mindset. So, when we try trading with 10 different indicators on our charts, we get confused, conflicted, and frustrated and once this happens it’s only a matter of time before these feelings result in impulsive and emotional trading. So, we can see that our mindset is perhaps the key to success in the markets, but because our trading strategy influences our trading mindset heavily, it too is very important.
The next time you want to put an indicator on your chart ask “Do I really need this? Is this really going to help me?”. “DO I REALLY NEED THIS?”….We want to only trade with what we need …..

How to incorporate minimalism into your trading routine (and everyday life)

• Ditch the forex indicators and trading robots and start over with a totally clean price chart. This act alone will do a lot to calm your nerves and your mind while analyzing the markets.
• Learn to trade with simple price action strategies. After you ditch the indicators you will need to learn how to trade off the raw price action of the market. Whilst this might seem different to you at first, I can promise you it’s a lot easier and makes a lot more sense than whatever messy method you were trading with before.
• After you learn to trade with price action, understand that you don’t have to spend a lot of time analyzing the markets each day. You can learn to trade in an end of day manner and fit trading in around your day job.
• Forget about trying to analyze 20 different markets each day. Minimize the markets you trade and this will work to sharpen your focus on the handful that you like the best. I focus on the major forex currency pairs and a few other markets like oil, gold, and the Dow.
• Don’t worry about multiple monitor setups, fancy trading desks, extremely expensive computers, monthly data feed subscriptions, or any of these other ‘luxury’ trading office items. Truth is, you don’t NEED them. They are nice things to have if you can truly afford them, but you really don’t need them to trade successfully. I can afford these things but I don’t have them anymore because I realized they were contributing to feelings of greed and materialism, and most of all I realized I just didn’t need them.
• One of the things I also did was got a P.O. box for my mail. This might seem like a small thing, but it’s all about downsizing and consolidating, and each little thing you downsize or get rid of adds up. Now, I only collect my mail once a week, this saves time and it changes the ‘process’ of your life…I took a minimalist approach to getting my mail, this freed up time and energy each day to devote to other more important things, even if it was a small amount of time each day.
• Make sure your trading room or trading location is clean and simple. Whether it’s in your home or from the local Starbucks, make your surroundings minimal. You don’t need 50 trading books sitting around, instead, pick your favorite 3 and keep them with you (hopefully one of those is my book :)). If you have to, put all the ‘junk’ that you really don’t need in a storage unit, I did that, and it really makes you realize that you don’t need the majority of the things you thought you did.

Conclusion

People like to hoard things; they hoard possessions, money, collectables, you name it. It’s a fact that when most people get a pay raise they simply tend to buy more things (crap) that they really don’t need, thus keeping them stuck in a perpetual cycle of consumerism and materialism. I am telling you that you do not need to live this way. You don’t have to be a slave to debt anymore, and you don’t have to try and keep up with the “Joneses”…who cares about the Joneses, they aren’t that interesting anyway.
You see, there’s a common thread between minimalism as a lifestyle choice, a trading choice, and happiness and success. That thread consists of the fact that material items do not bring you happiness, trading success is not the result of having lots of indicators and fancy office equipment, and success is more easily attainable with a clutter-free and streamlined lifestyle. Have you ever seen that show “Hoarders” on A&E? If you have seen it, you would agree that possessions don’t make you successful or happy. Materialism is a real addiction, buying things satisfies some primitive urge that we need to feel secure. This is very similar to why traders get addicted and dependent on indicators, reading economic reports, trading robots, and you name it. We tend to overlook the most obvious things in life, such as the fact that happiness is readily available for free by just spending time with loved ones, or that the raw and unobstructed price action of a market provides us with all the technical clues we need to develop an effective trading strategy.
From here, you need to take the next step and decide if you are living a cluttered life, and if so, how can you de-clutter it? Similarly, you need to take a look at your trading approach and decide if it’s simple, logical, and effective or full of clutter and confusion. If you want to de-clutter your approach to trading, I suggest you checkout my price action trading course and see just how much taking a minimalist approach to your trading will improve your overall trading results."learntotradethemarket"

A Guide To Exiting Trades Successfully

How many times have you been in a trade that goes in your favor a decent amount of pips and then it starts moving against you and you start to feel panicked? What about being in a trade that is up a nice profit and you decide to close it out only to see the market continue moving two or three times further in your favor without you on board? Is this just “part” of trading or are there things you can do to limit these types of frustrating trading situations? Today’s lesson is going to explain how you can make exiting your trades as simple and unemotional as possible.

Exiting trades is hard for most traders, but it doesn’t have to be. Like most other aspects of trading, people tend to over-complicate their exits and make them a lot more difficult than they need to be. It is the exiting of a trade that truly does separate the winners from the losers in the trading world. There are some very talented market analysts out there who can pick the market direction with 80% accuracy but still cannot turn a consistent profit because they are terrible at exiting the market.

Change the way you think about trade exits

When you think about “exiting a trade”, the first thing that comes to your mind is probably not a stop loss getting a hit for a pre-calculated loss that you knew had about a 40 to 60% potential of taking place. Instead, you probably think more about “rewards” and “take profit levels” when you think about exiting a trade, at least this is what most traders tend to think about it.
It’s pretty normal to think this way, because after all, most of us are initially drawn to trading from the idea of “fast money” or “quick profits” and “rewards”…and so it takes more brain power and forward-thinking to force yourself to think about losses and stop losses getting hit as an equally important part of exiting trades. So, don’t think you are alone if you have a fixation on profits and rewards…just know that you will need to “shift” your mentality on exiting trades if you want to have a chance at making consistent money in the market.
An important fact to understand about exits is that an “exit” includes profit targets AND STOP LOSSES, and an exit can also be a breakeven exit. Thus, it’s important to start thinking about stop losses as a critical component to your overall trade exit strategy, because how you manage losses and risk will decide whether or not you make consistent money in the market.

Accept that you simply aren’t going to win some trades

I’m going to tell you something right now that will have a profound effect on the rest of your trading career IF you decide to believe it and build it into your trading and money management plan: YOU ARE GOING TO HAVE LOSING TRADES. Whether or not you want to accept this fact is up to you. But, if I can promise you one thing about trading, it’s that you WILL have losing trades. How you manage your losing trades is a critically important factor in determining whether or not you make money in the market.
If you feel like you have already mastered your trading strategy and you have patience to wait for it to provide you with high-probability entry signals (you aren’t over-trading), the only other way you can consistently lose money in the market is by mismanaging your exits.
Here’s the “behind the scenes” reason why so many traders find exiting trades difficult or otherwise mismanage their trade exits; they are risking too much money per trade.
Think about it; if you have over-leveraged your account on a trade and it goes into profit for you, you’re going to have a very hard time taking that profit because relative to your account size you have a large open profit and as you sit there looking at that large open profit all you can think about is how much more you “could” make. You begin to justify reasons of why the market “might” keep moving in your favor and start “counting your chips at the table” by calculating how much more profit you could make on the trade if it keeps moving in your favor.
Of course…you are probably all too familiar with how the story ends…you don’t take the open profit for the reason I just described, and the trade starts moving against you and you are almost paralyzed in disbelief at how fast all your profit is vanishing. Your thoughts then move to the idea that “maybe” the market will stop moving against you and turn back around in your favor. You are now on the “roller coaster” of emotional trading that will eventually end in you losing a large amount of money…all because you risked too much on the trade.
Simple solution: ACCEPT that you aren’t going to win every trade and act accordingly. “Accordingly” means that you never risk more than you are OK with losing on any one trade, because, like it or not you COULD lose on any trade you take, not matter how “sure” you feel about it.

You need to be flexible but not emotional with your exits

As traders, we have to constantly ask ourselves whether our next decision in the market is a purely emotional one or one supported by logic and by what the price action is actually showing us on the chart.
Profit targets
Perhaps one of the most common mistakes that traders make in exiting their trades is moving their initial target further away ONLY because they think the trade will keep going in their favor. Most of the time, doing this leads to a smaller profit than what you had originally planned, or no profit at all.
Note: Just to be clear, I am NOT saying that you should never move your target further out from your entry or that you should never intervene and close your trades out manually, because if there’s a price action-based / objective reason to do so, then you should. The question you have to answer about profit targets is are you moving your targets around or exiting manually based on emotion (greed or fear), or is it based on what the actual price action is doing on the chart?
Remember, when you originally plan your exit for the trade, you place the profit target based on your mindset and analysis of the market just before you entered. You were probably a lot more objective and calm at that time because you weren’t in the market yet. Once your trade gets filled you immediately become less objective and more emotional as the market ebbs and flows. The best course of action in regards to profit targets, is often just to leave it where you initially planned it. Moving it further out as price approaches it is typically an action born out of greed…not out of logic. How many times have you done this and then the market hits your initial planned target or moves just a tiny bit past it and then rockets back against you, turning a solid open profit into a much smaller one or even a loss?
Even if the market DOES keep going in your favor after you moved your target further out, it’s still a bad habit to develop because it means you are reacting emotionally to what the market is doing rather than preempting your actions in the market and acting objectively. You cannot rely on luck in trading, eventually your luck will run out, probably when you need it the most. Thus, essentially what I’m saying here is that you need to stop moving your profit targets away only because the market is getting close to hitting them. Let them get hit if there’s no price action based reason not to move them; let your pre-planned profit target play out, then patiently wait for the next trade. This is part of developing discipline, patience and the correct trading habits.
Stop losses
You also need to be flexible but not emotional with your stop losses. You can be a little bit more rigid with stop losses than with profit targets. Meaning, with stop losses, it makes more sense to let the market take you out by moving down or up into your stop loss, that way you give the trade the maximum possible chance of moving in your favor.
The “set and forget” trade management concept that I teach is more important in regard to stop losses than profit targets. We need to avoid exiting a trade just because it’s going against us; we need to be much more disciplined with the set and forget concept by not exiting until our stop loss is hit in most cases.
If you manually close a trade out for a loss before it hits your pre-determined 1R dollar loss, you are also voluntarily eliminating any chance of the trade moving in your favor and this obviously affects the potential long-term profitability of your trading strategy. This is OK to do sometimes, IF the market’s price action calls for it, but a lot of times traders close out trades for small losses ONLY because the market moves against them a little bit, then the market moves back in their favor without them on board. As with profit targets, you really should only move a stop loss or close a trade out manually for a loss if there’s a valid price action based reason to do so.
Note: You should NEVER move your stop loss further away from your entry point, no matter what. This is like the cardinal sin of trading and it’s a fast track to blowing out your account. Stop losses should only ever be moved to reduce your risk on the trade, to breakeven or to lock in profit by trailing the stop.

Sometimes, taking a smaller profit is OK…

This point goes along with what we just discussed about being flexible in your trade exits. But, I wanted to mention this more in-depth since I know there are some misconceptions out there about taking less than a 1:2 risk reward and when / if that’s “OK”.
Basically, you don’t need to be totally “rigid” by always either taking a 1:2 or 1:3 risk reward (or some other pre-set reward) or no reward at all. Sometimes, it does make sense to close a trade out with a smaller profit if there’s price action telling you to do so…even if you haven’t reached a 2R or more profit.
I get emails from traders saying things like, “Nial, my trade came 5 pips shy of a 1:2 profit today but I didn’t take it and it turned around and now is at a loss”…this is where you need to monitor your trades and intervene if you have to. If the market gets really close to your profit target you should monitor the price action, if you are at a 1:1.5 or 1:1.8 risk reward and the market appears to be turning around (based on the price action)…there’s nothing wrong with closing the trade out and taking the profit off the table. You don’t need to let profits slip away just because you are trying to get some exact profit target, that’s also being greedy…situations like these is where the saying “don’t be a dick for a tick” came from.
You want to keep an eye out for a price action signal that is opposing your initial trade or for situations where the market spends a long time trying to touch a level but can’t quite get the legs to hit it. If you notice either of these things happening it probably means you need to intervene and possibly exit the trade early.

Set and Forget truly is powerful, use it with discretion though.

Many of you have probably already read my ‘set and forget trading’ article that talks about a very simple trade management technique which, as the name implies, involves setting and forgetting your trades. In other words, after you enter your trades you don’t meddle with them. However, there are exceptions to this rule, because the markets are dynamic and constantly changing…so we cannot afford to be 100% rigid in our approach to trading.
It will help if you think of “set and forget” as more of a “default” trade management technique…not something you do all the time despite what the market is telling you. Set and forget basically just means you don’t do anything if there’s nothing logical to do. It should be your baseline trade management point…meaning, after you enter a trade you don’t move your stops or targets around unless the price action that you see on the chart is implying that you should. You should consider “set and forget” as a nice metaphor for managing your trades with logic and objectivity instead of emotions like fear and greed.
Thus, the mental concept of “set and forget” is important, but the actual practical implementation of it will still require some monitoring and intervention. You will need to monitor your trades say once every 4 to 8 hours on average, and at the time you need to be as objective as possible as you observe the market. If a trade is working as planned, then do nothing. If the market has formed a huge pin bar reversal against your position but you are still up about two times your risk…then it probably makes sense to close that trade out manually and take the profit, because you have a valid price action-based reason to do so.
However, let’s say you check in on your trade and it’s gone against you by 20 pips but there’s no obvious price action telling you to exit. You would not close the trade at that point, you would instead leave it open and just let the market play out. Closing a trade only because it has gone against you a little bit is not a good enough reason to close it out…we need to give our “edge” (trading strategy) time to play out if there’s no logic / price action-based reason to close it out.

What is a “successful” trade exit?

Finally, you can determine whether or not you exited a trade successfully by answering the following questions:
1) Did I exit emotionally or logically? (“Logically” should be the answer)
2) If I lost on the trade, did I lose my predetermined dollar risk amount (1R) or less? (“Yes” should be the answer)
3) If I won on the trade, did I make 2R or more on the trade? If I made less than 2R on the trade is there a logic and price action-based reason that I exited before 2R was hit or did I just panic because the trade was moving against me? (“Yes” you should have exited logically no matter the size of your profit)

How The 80/20 Rule Applies To Forex Trading

Have you ever noticed that most of the money in the world is held by a relatively small minority of people? Or, how about that most people tend to work in short spurts of intense productivity followed by larger periods where they are less productive? There’s an underlying principle that can be used to describe such occurrences, it’s known as the Pareto principle, or the ’80/20 Rule’.
Some of you might be familiar with the ‘80/20 Rule’, some of you might not be. For those of you who haven’t heard of it before or need a refresher, according to Wikipedia, “it is named after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas”
The 80/20 rule is popular in business studies, sales, economics and many other fields. However, today we are going to discuss how the 80/20 rule applies to trading and the significant positive impact the “80/20 mentality” can have on your trading performance.

How the 80/20 rule applies to your trading

Quick note: These are my personal observations over my 10+ years in the market. The 80/20 rule is not an ‘exact’ science, but it does give you a very effective way to make sense of many aspects of trading and how they all fit together. Also, all ‘80/20’ ratios discussed below should be thought of as “approximate” ratios, meaning they could actually be 75/25 or 90/10, etc.
As Yaro Starak points out in his blog post on the 80/20 Rule and Why It Will Change Your Life:

“By the numbers it means that 80 percent of your outcomes come from 20 percent of your inputs. As Pareto demonstrated with his research this “rule” holds true, in a very rough sense, to an 80/20 ratio, however in many cases the ratio can be a lot higher – 99/1 may be closer to reality.”

I wanted to start off with the above quote by Yaro Starak because in trading, the 80/20 rule is more like 90/10 or sometimes even 99/1 as he says.
How often have you heard “90% of traders fail while only about 10% make consistent money”? Often, I am willing to bet. Whilst the exact ratio of traders who make money vs. those who lose money is obviously almost impossible to pinpoint, it probably is somewhere between 80/20 and 95/5. Have you ever thought to yourself “why is trading apparently so difficult that 80 or 90% of people fail at it?” I’m willing to bet you have, and here is my answer to this pervasive question:
Trading is the ultimate “less is more” profession, but it’s also extremely difficult for most people to come to grips with this fact by accepting the following:

• 80% of trading should be simple and almost effortless, 20% is more difficult
• 80% of profits come from 20% of trades
• 80% of the time the market is not worth trading, 20% it is
• 80% of the time you should not be in a trade, 20% you can be
• 80% of trades should be on the daily chart time frame, 20% can be other time frames
• 80% of trading success is a direct result of trading psychology and money management, 20% is from strategy / system

Let’s delve into each of the above points a little deeper and see how you can start applying them to your trading, and hopefully start improving it, significantly.

80% Simple, 20% Difficult

This one is easy. Most of what we do as traders is sit in front of our computers and look at prices going up or down or sideways. This is not by anyone’s standards “hard” to do. Hell, you can put a 5 year old in front of a chart and ask them which direction they think it will go next and they will probably get it right more often than not. The point is this; determining market direction and finding trades is not hard, people make it hard.
I teach price action as you probably know (honestly, if you don’t know that by now you need to checkout this article right now: price action trading introduction), and it’s not simply some strange coincidence that I teach this particular form of trading, I also personally trade with price action…because it is simple (and effective). The trading strategy you use doesn’t need to involve complex computer algorithms, counting ‘waves’ or interpreting heaps of indicators. In fact, most traders get bogged down with trying every trading method under the sun until they either give up or figure out that they were simply over-complicating what should be a very simple process.
The difficult part of trading is controlling yourself via not over-trading, not risking too much per trade, not jumping back into the market on emotion after a big win or a loss, etc. In short, controlling your own behavior and mindset, as well as properly managing your money are the hardest parts of trading, and traders tend to spend less of their time & focus on these more difficult aspects of trading, probably about 20%, when they should be spending about 80% of their time on them.

80% of profits come from 20% of trades

If you have followed my blog for a while, you know that I am strong proponent of “sniper trading” and waiting patiently for high-probability trade setups, rather than the high-frequency trading style that tends to put so many traders ‘out of business’, so to speak.
It’s absolutely true that most of my trading profits come from a small percentage of my trades. I like to keep all my losing trades contained below a certain 1R dollar value that I am comfortable with, and if I see what I consider an “obvious” price action signal with a lot of confluence behind it, I will go in strong and make a nice chunk of change on the trade if it goes in my favor. Because I trade with such patience and precision, the winning trades I have typically double or triple the 1R risk I gave up on any of my losers. This way, even if I lose more trades than I win, I can still make a very nice return at year’s end.

80% of the time I am not trading, 20% of the time I ‘might’ be

I might trade 4 times per month on average, quite simply because I am a very picky trader. I don’t like to risk money on a setup that isn’t ‘screaming’ at me or what I like to say is “damn obvious”. Most traders like to trade a higher-frequency trading style, and it’s not a coincidence that somewhere around 80 to 90% of them lose money. They are losing money because they are trading way too much and not being patient or disciplined enough to wait for their strategy to really come together and give them a high-probability entry signal.
Do you see the connection between the fact that most traders lose money (around 80%) and about the same amount of time the market is really not worth trading? Markets chop around a lot, and a lot of the time the price action is simply meaningless. As a price action trader, our job is to analyze the price action and have the discipline to not trade during the choppy (meaningless) price action and wait for the 20% or so market conditions that are worth trading.
This point is the most important in this whole article: I get a lot of emails from beginning and struggling traders and I know for a fact that the main thing that separates the professionals from the amateurs in this business is patience and not over-trading. Traders tend to negate their trading edge by trading during the 80% of the time when the market is not worth trading. Instead of waiting for the 20% of the time when it is worth trading, they simply trade 80% to 100% of the time with very little discretion or self-control, like a drunk guy at a casino. Don’t let this be you, remember the 80/20 rule ESPECIALLY as it pertains to trading vs. not trading. If you think you are trading about 80% of the time, you need to evaluate your trading habits and make it more in-line with trading only 20% of the time and 80% of the time should be spent observing and keeping your hands in your pockets (not trading).

80% daily chart trades, 20% other time frames

The daily chart time frame is my “weapon of choice” as far as chart time frames are concerned. I would say it’s pretty accurate that just about 80% of my trades are taken on the daily chart time frame. I won’t get into all the reasons about why focusing on the daily charts is so much better than lower time frames, but you can click the link above to find out more.
However, I would like to point out that there is also a direct connection between the fact that most traders get caught up trading lower time frame charts and most of them lose money. This fits well with the 80/20 rule in that probably only about 20% of traders really focus on higher time frame charts like the daily chart and somewhere around 20% to 10% of traders actually make consistent money. People tend to be drawn to the “play by play” action on the lower time frame charts, almost like they are mesmerized by the moving numbers and flashing colors…unfortunately, this turns into somewhat of a trading addiction for many traders, that quickly destroys their trading accounts.

80% of trading success is psychology and money management, 20% is strategy

In the article I wrote that detailed a case study of random entry and risk reward, I showed how it is possible to make money simply through the power of money management and risk reward. To be clear, I was not and am not saying that you can make a full-time living as a trader without an effective trading strategy. I am simply saying that money management and controlling your mindset is far more important than finding some “perfect, Holy-Grail” trading system that simply does not exist.
You should be focusing about 80% of your trading efforts on money management and controlling yourself / being disciplined (psychology), and about 20% on actually analyzing the charts and trading. If you do this consistently, I can guarantee you that you will see a very positive change in your trading profits, or lack thereof.
Using an effective trading method that is also easy to understand and implement will give you the mental clarity and time to focus 80% on money management and discipline whilst only needing about 20% of your mental energy for analyzing the markets and finding trades. A lot of traders never even get to this point because they are still trying to figure out how the heck to make sense of their trading system.

 Where to go from here with the 80/20 rule…

If you look back over your trading account history from January 1^st until now, ask yourself how many of the trades you lost money on where actually valid occurrences of your trading strategy (edge) versus random gambling-type trades that you entered out of emotion or impulse. I’m willing to be that the ratio of emotional trading losses to losses that were the result of a normal statistical losing trade, is about 80/20…surprise, surprise.
The implication here is clearly that you can eliminate about 80% of your trading losses by avoiding emotional or impulsive trading. The first step to trading with an ‘80/20 mindset’ is to master a simple trading strategy like the price action strategies I teach in my trading courses. As I said earlier, if you do this it will give you the foundation you need to focus more of your time on the real “money makers” in trading, which are money management and your own mental state. Thus, the 80/20 rule in trading is best applied by combining a simple trading strategy and a strong focus on money management and psychology, the synergy of this combination is a very potent force for making money in the market.'forexarticles'

Using ‘On-Stop’ Orders to Maximize Trading Profits

 

There’s an abundant amount of trading opportunities each month in the market, but we don’t always have the time or desire to sit around staring at our charts waiting for the market to hit our pre-determined entry level. Also, I should mention that sitting around waiting for the market to trigger an entry is an unnecessary waste of time and can tempt us into entering a trade prematurely or to enter a trade that we otherwise might not. Fortunately, with the knowledge of how to use ‘on-stop’ entry orders, we can eliminate the need to sit in front of our computers waiting for the market to trigger a trade entry.
I get a lot of emails from traders asking me about different trade entry order types and how to use their Meta Trader 4 (MT4) trading platform. Thus, in today’s lesson I thought I would answer both of these questions by discussing how to use ‘on-stop’ entries properly and some of the advantages they provide.

Advantages of ‘on-stop’ entries

Let’s discuss some of the ways that ‘on-stop’ entry orders can improve your trading and the major advantages they provide:
• Momentum confirmation – When you enter the market on a stop entry, the market moves into your order on momentum that is in-line with the direction you want to trade. This has the added advantage that price is already moving in the direction that you are trading at the time of entry and often results in your trade moving into profit quickly. If you were to use the other two popular entry orders; a market or limit entry, you do not necessarily have this advantage.
For example, if you are entering on a ‘buy stop’, it means you are buying the market and in order for your buy stop to get filled the market has to be moving higher and move up into your buy stop entry, and that means it has bullish momentum behind it. Conversely, if you enter on a ‘sell stop’ entry, the market will need to be moving lower, down into your sell order. It doesn’t “guarantee” that the trade will continue in your favor, but at least at the time of entry the market is moving in your favor.
• You don’t have to be at your computer – Many of you have read my set and forget trading lesson, but what I don’t get into in that lesson is that the stop entry order allows you to set up your trade and ‘forget’ about it (stop entries allow you to ‘set and forget’). Also, unlike a limit entry, with a stop entry order you have the added peace of mind of knowing that if your trade does get filled after you set and forget it, you will get filled with ‘momentum confirmation’ as we discussed above.
Many of us (myself included), don’t have all day to sit around waiting for the market to move to our desired entry level. If you use an on-stop entry, you do not need to sit there watching and waiting; once you spot a price action trade setup you can simply enter your stop entry order, stop loss and target, and then walk away for a while.
• Eliminate trade ‘obsession’ – If you are trading an inside bar setup for example, you do not need to sit there waiting for the market to break past the mother bar high or low to enter. Instead, you can simply place a buy stop or sell stop just above the high or low of the inside bar and then go do something else. Traders who obsess over trades and are glued to their screens tend to lose money, you need to be interested and passionate about trading but not “in love” with it, I discussed this in last week’s article in which I talked about the differences between amateur and professional traders.
• Reinforce discipline – If you set an on-stop entry order and then walk away and let the trade play out, you are trading with discipline. There is something to be said for “letting the market come to you” as opposed to just jumping in with ‘at-market’ orders all the time. A stop entry allows you to set the exact level you want to enter at; if the market breaks past a certain level you will get filled, if it doesn’t, then you won’t. Many traders get into trades too early, before they really start moving, and this causes all kinds of psychological problems for them like second-guessing their entry, over-analyzing and closing out trades prematurely; if you enter with a stop order as the market moves into your desired entry level, it can help you avoid these mistakes.
Also, by setting your order and then going and doing something else, letting the market ‘do the work’, you are getting into the habit of not ‘forcing’ trades and of trading in a relaxed manner, instead of over-trading and (or) getting in prematurely. Once you start to see success trading in this manner it will begin to reinforce the discipline you had to put forth to set your order up and walk away.

Examples of effective use of ‘on-stop’ trade entry orders

Using stop entries to enter the market in-line with fresh market momentum is an excellent way to take advantage of this entry type. The idea here is, after a surge of momentum opposite to a recent trend, a stop entry on a price action signal can help “confirm” that the fresh momentum will continue at least for a while after filling your entry order.
In the chart image below, we see a EURUSD pin bar sell signal that formed shortly after a down move in the market that followed a strong up trend. The most logical entry order on this pin bar sell signal was a sell stop, because this gives us some more “confirmation” (not 100%) that more bearish momentum might be in store. In this case, the pin bar signal actually kicked off a very large move lower and formed very early in the new downtrend.
Using on-stop entry orders can help get you into new trends early. By taking you into the market in-line with the near-term momentum, you get a little extra “confirmation” that the move you are entering on is more than just a temporary counter-trend retrace:
The on-stop entry is the only entry type to use for an inside bar trading strategy. An inside setup is a ‘breakout’ play by definition, so you need to enter in-line with momentum by waiting for price to break either above or below the mother bar high or low.
 Note that using the sell-stop entry allowed us to have a little extra “confirmation” that the downtrend might continue by bringing us into the trade as bearish momentum pushed price down into our stop entry which would be placed just (typically 1 pip below) below the mother bar low of the inside bar setup:
The recent sell-off in the spot Gold market has been widely discussed on our site and if you knew how to use sell-stop entry orders properly you did not have to waste time waiting for the big moves to trigger. You could have simply placed a sell stop entry order below the lows of two recent price action sell signals on the daily spot Gold chart and then literally walked away, and you would still (at the time of this writing) be up a very large profit. This truly shows the power of using on-stop entry orders in trending markets.
In the chart image below, we can see two recent price action sell signals in the Gold market that you could have entered on sell-stop orders. The first one was a fakey sell signal that formed back on May 3^rd, note how the market consolidated and ‘chopped’ sideways for four days after the signal formed. If you had placed a sell stop just below the fakey’s mother bar low, you would not have gotten filled until price finally broke lower, triggering the fakey sell entry on May 10^th. Had you entered “at market” or on a limit retrace entry before price broke the mother bar low, you would have had to endure 4 days of price chopping sideways, including one big up day against your position. Many traders struggle with the emotions that get stirred up when they enter a trade early like this and have to wait for it to come off, and they end up closing trades out prematurely for no real reason as a result, then the trade comes off without then on board; this can mostly be avoided by using on-stop entry orders.

How to place an ‘on-stop’ entry order… What good is knowing the advantages of on-stop entry orders if you don’t know HOW to place them?
Let’s do a quick walk-through of how to place pending on-stop entry orders on the Meta Trader 4 trading platform:
Step 1. There are three easy ways to open the order entry screen in MT4. The first one is to simply right click on the chart of the market you want to trade and then slide your mouse over “trading” and then “new order”, click on it and then you should see this box appear:



An even easier way to make the order window appear is to simply push the ‘F9’ button on your computer when you have the MT4 platform open, doing so will also open up the above order entry window.
The third way to get the order entry window open is to go to “Tools” at the top of the platform and then select “new order”. These are the three main ways to open up the order entry window in MT4.
Step 2. The next step is to select “Pending Order” from the order “Type” drop down menu. Then, you will select Buy Stop or Sell Stop, depending of course on which direction you are trading (Buy Stop for buy entry, Sell Stop for sell entry).



Step 3. Next, you need to select the price you want to enter the market at and the expiry date of the entry order; the expiry date means if the market hasn’t filled your order by that date, the order will automatically be cancelled. You also need to decide the volume you will trade (lot size) and put in your stop loss level and profit target, for more on this, checkout this article on how to place stop losses and targets.



After you place your stop entry order you can see it in the “Terminal” window at the bottom of the MT4 platform. Be sure to either set an “expiry” as explained above, or cancel your pending stop entry order if it doesn’t get filled by the day you want. Forgetting about a pending order with no expiry can cause you to enter the market when you aren’t expecting to or don’t want to, this obviously can result in an unplanned loss.

Price Action Trading Patterns: Pin Bars, Fakey’s, Inside Bars

In this Forex trading lesson, I am going to share with you three of my favorite price action trading strategies; pin bars, inside bars and fakeys. These trading setups are simple yet very powerful, and if you learn to trade them with discipline and patience you will have a very potent Forex trading edge.

Whilst these three setups are my ‘core’ setups, there are many other versions and variations of them that we focus on in our members’ community and advanced price action trading course. However, you can learn some good basics in this article to lay the foundation for future learning. So, without further delay, let’s get this party started…

Pin Bar Setup:



The pin bar is a staple of the way I trade the Forex market. It has a very high accuracy rate in trending markets and especially when occurring at a confluent level. Pin bars occurring at important support and resistance levels are generally very accurate setups. Pin bars can be taken counter trend as well, as long as they are very well defined and protrude significantly from the surrounding price bars, indicating a strong rejection has occurred, and preferably only on the daily chart time frame. See the illustration to the right for an example of a bearish pin bar (1st bar) and a bullish pin bar (2nd bar) —>
In the following chart example we will take a look at pin bars occurring within the context of a trending market; my favorite way to trade them. Also, note that this uptrend began on the back of two bullish pin bars that brought an end to the existing downtrend.


Fakey Setup:




The fakey trading strategy is another bread and butter price action setup. It indicates rejection of an important level within the market. Often times the market will appear to be headed one direction and then reverse, sucking all the amateurs in as the professionals push price back in the opposite direction. The fakey setup can set off some pretty big moves in the Forex market.
As we can see in the illustration to the right, the fakey pattern essentially consists of an inside bar–> setup followed by a false break of that inside bar and then a close back within its range. The fakey entry is triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish fakey).
In the chart below we can see the market was recently moving higher before the fakey formed. Note the fakey was formed on the false-break of an inside bar setup that occurred as all the amateurs tried to pick the market top, the pros then stepped in and flushed out all the amateurs in a flurry of buying…





Inside Bar Setup:



The inside bar is a great trend continuation signal, but it can also be used as a turning point signal. However, the first way to learn how to trade the inside bar strategy is as a continuation signal, so that is what we will focus on here, more info on the inside bar and all the ways to trade it can be found in my advanced price action trading course. As we can see in the illustration to the right, an inside bar is completely contained within the range of–>  the previous bar
It shows a brief consolidation and then a break out in the dominant trend direction. Inside bars are best played on daily and weekly charts. They allow for very small risks and yet very large rewards. The inside bar strategy combined with a very strongly trending market is one of my favorite price action setups.
In the example below, we are looking at a current (as of this writing) EURUSD inside bar trade setup that has come off to the downside with the existing bearish market momentum. We can see a nice inside bar setup formed just after the market broke down below a key support level, the setup has since come off significantly lower and is still falling towards the next support at 1.2625, as of this writing. Many of our members are in on this trade as we’ve discussed it extensively in both the members forum and the daily member’s commentary.



As you can see from the three examples above, Forex trading does not have to be complicated or involve plastering messy and confusing indicators all over your charts. Once you master a few solid price action setups like the ones above and the others in my Forex trading course, you will be well on your way to becoming a more confident and profitable trader, just remember, mastering these setups will require patience, dedication and discipline."learntotradethemarket"

5 Money Management Secrets for Successful Trading

Money management is like the “elephant in the room” that most traders don’t want to talk about. It can be boring, embarrassing, or even emotionally painful for some traders to talk about risk and capital management, because they know they aren’t doing it right.
However, as with anything in life, talking about the “elephant in the room” is usually the best thing you can do to improve your Forex trading. This means, being honest with yourself and focusing on the “hardest” or most boring things first and as often as necessary. If you ignore these things they will typically grow into huge problems that you can no longer control.
In today’s lesson, I’m going to help you understand some of the more important aspects of managing your risk and capital as you trade the markets. This lesson will answer many questions I get from traders asking about breakeven stops, trailing stop losses, and more. So let’s get started…

Keep risk consistent

The first “secret” I’m going to tell you about is to keep your risk consistent. As Marty Schwartz said in the the market wizards article that I quoted him in, “Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.”
Why do I consider this a “secret”? Well, since most traders have a tendency to increase their risk size after a winning trade or after a series of winners, this is typically something you want to avoid. Basically, doing the opposite of whatever “most traders” do can be considered a “secret” of trading…and when it comes to money management there are quite a few of these “secrets”.
I’m a strong proponent of keeping risk consistent not only because it’s how other professional traders operate, but because of lessons learned from my own personal experience as well. Earlier in my career, I was the guy cranking up my risk after a winner…and finally after realizing that this was not the right thing to do, I stopped. Also, from my observations of traders that I help, I know that many traders increase risk after a winner, and this is a big reason they lose…
After you win a few trades you have a tendency to become over-confident…and I should stress that there’s nothing inherently wrong with you if you do this or have done it; it’s actually human nature to become less risk averse after winning a trade or multiple trades. However, it is something you’ll need to put an end to if you want to make money trading the markets. If you’ve read my article about the one thing you need to know about trading, you would know that even if you’re following your trading strategy to the T, your winners and losers are still randomly distributed. This means, after a winning trade there is no logic-based reason to think the next trade will also be a winner….thus no reason to increase your risk size. But, as humans, we like to gamble….and it can be really hard to ignore the feelings of euphoria and confidence after hitting a nice winner…but you HAVE TO if you want to manage your money effectively and make a living in the market.

Withdraw profits

As we discussed above, keeping your risk consistent or “fixed” is one of the keys to successful Forex money management. Professional traders do not jack up their risk exponentially after every winner…this is not a logical or real-world way to manage your risk. Professional traders who make their living in the markets withdraw money from their accounts each month and most will keep their accounts funded to around the same level each month. If you’re withdrawing profits every month then you would not keep increasing your risk amount over time.
What you need to do is build your account up to a level your comfortable with, and then you can start withdrawing profit each month to live off of…thus the amount you risk on each trade would not keep increasing because eventually your trading capital will reach an “equilibrium” level.

Moving a stop loss to ‘breakeven’ can kill your account

The big secret regarding breakeven stop losses is that you should not move your stop loss to breakeven unless there’s a real price-action based, logical reason to do so. Moving your stop loss to the same level that you just entered at doesn’t make sense if there’s no reason to do so. Moving to breakeven arbitrarily or because you have some pre-decided “rule” to do so is simply not an effective way to manage your trades. How many times have you moved to breakeven only to see the market come back and stop you out and then move on in your favor? You have to give your trades “room to breathe”, and if there’s no reason to tighten your stop or move to breakeven, then don’t.
What you might not realize, is that messing around with your stop loss or manually closing trades out before they’ve had a chance to move, is voluntarily reducing the ability of your trading edge to work in your favor. In short, if you don’t have a logic-based reason to move to breakeven, then you’re moving to breakeven based on emotion; mainly fear. You need to overcome your fear of losing money, because losing is part of being a successful trader, and until you learn how to let a trade breathe and move without your constant interference, you will not make money.
Now, I’m not saying that you should never move to breakeven, because there certainly are times when you should. Below are some logical reasons to move your stop loss to breakeven:
• If an opposing signal causes caution and changes market conditions you can take that as a logic-based reason to move to breakeven.
• If the market approaches a key chart level and then starts to show signs of reversing, you should take that as a signal that the market might indeed reverse and then trail your stop to breakeven.
• If you’ve been in a trade over a few days and nothing is happening, you might exit the trade or move to breakeven…this is known as a “time stop”, or using the element of time to manage your trades. Generally speaking, the best trades do tend to work out in your favor soon after you enter.
• If a big news announcement like Non-Farm Payrolls is coming out and you’re up a nice profit, you might want to move to breakeven or monitor the trade. Volatile news announcements like this can often change market conditions.

Don’t be greedy: don’t aim for big targets all the time

Another “secret” of money management is that you have to actually take profits. This might not really seem like a “secret” to you, but I consider it a secret since most traders simply don’t take profits as often as they should…and many traders almost never take profits. Why do you have trouble with taking profits? It’s simple really; it’s hard to take a profit when a trade is in your favor because your natural tendency is to want to leave a trade open that’s in your favor. Whilst it is important to “let your winners run”…you have to pick and choose when you do this; you certainly should not try to let every winning trader run. The market ebbs and flows, and the majority of the time it’s not going to make a really strong directional move without retracing a lot of it. Thus, it makes much more sense as a short-term swing trader to take a solid 2 to 1 or 3 to 1 profit when the market is offering it to you…rather than waiting until the market retraces against your position and moves all the way back towards your entry point or beyond, at which point you will probably exit emotionally since you’re mad you let all that open profit go.
Especially for traders with smaller accounts, you have to be happy taking “bread and butter” rewards of 1 to 1 or 2 to 1 often….there’s nothing wrong with hitting those “singles” and “doubles” to build your trading account as well as your confidence. You have to avoid the temptation of trying to hit a “home run” on every trade.

Knowing when to let a profit run

Every now and then the market will be just ripe for a 10 bagger….a home-run trade. Whilst these trades are rare, they do indeed occur, however you have to avoid the mistake that many traders often make; aiming for a “home-run” on every trade. Most of the time, the market is only going to move a certain range each week and month. For example, the average weekly range on the EURUSD is around 250 pips.
Knowing when to try and let a trade run and when to take the more certain 1 to 1, 2 to 1 or 3 to 1 reward is really where your discretionary price action trading skill comes into play. I’ll be honest here because I do get a lot of emails asking about when to let trades run versus taking a set risk reward ratio, there’s no “concrete” rule I can give you except to say that training, screen time, and “gut” feel for reading the charts are things that you need in order to improve your skill at exiting trades.
I can however give you some simple filters that you can use to assess trades on a case by case basis to help determine whether or not they are good candidates to try and run into a bigger winner:
1. Strong breakout patterns – When the market has spent a while consolidating it will typically lead to a strong breakout up or down. These strong breakouts can often be good candidates for “home-run” trades. However, not every breakout is equal; some are weaker than others and sometimes the market makes a false break before the real breakout occurs. So, we need to exercise caution when trading breakouts, the safest ways to enter a breakout are the following two scenarios:
The chart image below shows us an example of entering the market on a price action setup in “anticipation” of a breakout. This is a more advanced way to enter a breakout but it can provide a tight stop and a very large risk reward potential on the trade. There are usually price action “clues” just before this type of breakout; note the bullish tails on the bars that preceded the inside bar setup in the chart below. This indicated that momentum was building just below resistance for a potential upside breakout, then we got the little inside bar setup just below the breakout level that provided a nice “anticipation” entry into the market.
The chart image below shows an “anticipation” entry on a price action signal just before the breakout:




The next way to enter a breakout that could lead to the type of trade that you can let run into a bigger winner, is to wait for the market to “confirm” the breakout after a retrace back to resistance or support. Once price breaks above or below a key level it will typically come back and retest it before pushing off again in the direction of the breakout. These types of “confirmed” breakouts from key levels can also be very good opportunities to try and trail your stop to let the trade run.
The chart image below shows a price action signal that formed on a retrace back to the breakout level:





2. Obvious trend continuation signals
Strong trending markets can obviously be good candidates to try and let your trade run into a big winner. We sometimes see very large potential winners in strong trends like the GBPJPY chart below shows. Note, in this example below, the trend was clearly up and so any price action signal that formed in this strong trend would have been a good candidate for a larger gain, we can see the pin bar signal and inside bar setup in the chart below could have been very large winners for anyone who traded them.
The chart image below shows a good example of trading price action trend-continuation signals which can be good candidates for trailing your stop to let the trade grow into a bigger winner:




3. Price action signal at a key level in strong trending market
Another good scenario to look for potential “home-run” trades is after the market retraces to a key level within a trending market. In the chart below we can see a clear example of this when a fakey setup formed recently in the spot Gold market within the structure of the downtrend. We actually discussed this fakey in our February 5^th commentary and we can see the market fell significantly lower after forming that signal from resistance. When a market is clearly trending and then it retraces back to a key level and forms an obvious price action signal in-line with the underlying trend, it can often be a good opportunity to look for a larger than average winner.
The chart image below shows a fakey signal that formed after the market had retraced back to a key resistance level within the down-trending market:
The above scenarios can be good for letting your profit run. You would want to begin the trailing process by moving your stop to breakeven once the market clearly shows you that the trend is taking off in your favor. I like to wait until I am up at least 1 times my risk before moving my stop to breakeven. After that, how you trail your stop and exit the trade is something you will have to use discretion to decide; there are many different trailing techniques but none of them are “perfect”. Over time and through training and practice, you will develop a better sense for determining whether or not to trail a stop and how to do it.

Final note

The strategy we trade with is obviously important, but in reality, that should not be the “be all and end all” of your trading plan. The way that you manage your risk and your overall capital is the true “secret” to trading. Most of you reading this already know you are not paying enough attention to how you think about capital preservation and risk management, you’re not taking it seriously because it’s the more boring part of the game. It’s time to wake up and face the reality; not paying attention to risk management and capital preservation will lead you to a path of financial pain and personal stress. Managing your risk properly while trading with a simple yet effective trading strategy is the basis of what I teach in my trading course and members’ area. Once you combine these two critical pieces of the trading puzzle, you will be ready to start making consistent money in the markets."learntotradethemarket"

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 become lost in a web of confusion with the amount of data that the various financial media outlets 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 breakeven because they felt “scared” or “nervous” that they might lose money on the trade.



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.

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 sentenes: 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 that I teach in my price action trading course, is the best method to use to maintain your “set and forget” mindset."learntotradethemarket"