This is such a great article. It reminds me of myself when i started trading over 3yrs ago. I almost die cos of the pain and agony i went through whenever i loss or miss trades (I don't even know which pain was grater-it was that bad.). I was looking stressed and losing weight cos i took every loss too PERSONAL and always wanted to REVENGE on my lost $ even though i didn't have any edge (proven strategy). I lost 2 a/c in this process.
My persistence made me change my perspective and gradually, through study (fxcm courses and some great books on trading) and constant practice (i used forex tester to MANUALLY back test my system), I am a better trader. I know am not there yet.
To those who are still struggling out there in there trading career, i will want to let you know that the process of becoming a successful trader is veeery boring and if u are the one with constant adrenalin-rush and you want a career that will excite you while you are doing it then i will sugest u chose another career (maybe entertainment industry) that does not require such BRUTAL DISCIPLINE like that in trading. Not that successful traders live a boring life. No. Just that the process of having our dreams (trading) is somehow boring.
My advise to such people is this: -Have a proven strategy that you made or got from a course (make sure you test this manually yourself. take 100 to 200 or even more trades using forex tester.)
-Trade just ONE PAIR with this strategy for the next 6 months. Just one pair and ur life will change.
-Have a book where you write your reasons for entering a trade. This prevent you from making impulsive trade. ( I now have a screen shot of my chart b4 and after any trade and i write my reasons right on the captured chart. Its so helpful)
- Keep a trade journal. Record your entry and exit price as well as profit, loss and every vital detail that is necessary. An excel program is best for this. I just input like 3 data and it works out the rest.
-Have a very solid money management rule. That's the only way you can buy that Ferrari you dream about.
I know most beginner have read all this rules b4 but think they will apply it when they get bigger or more experinced. The truth is this is what the experienced traders do and to get to that level we have to do what they do from the very start.
Remember just one strategy and and one pair. That's what changed my life cos confidence will only come when you make profit and when you make profit gradually then you are on your way to the top. The market will be there next yr so no rush. Especially if you are the type that don't have deep pocket and you want to live on the profit made from trading (like most of us started with) the only way to go (in my opinion) is to trade just one pair cos sometimes little can be more.
Happy trading.

You make some EXCELLENT points and thanks for your post on these all important topics.

I want to emphasize what you said regarding being disciplined in both the application of a trading plan and money management. These are both critical areas of trading to master if one plans to be in trading for the long term.

You also mentioned keeping a journal...I would applaud that suggestion as well. For those who may be wondering, some information contained in a Trading Journal could come under the following headings: date of the trade, currency pair, price on entry, stop and limit placement, price on exit, date of exit, pips gained/lost and a Remarks area. Contained in this last area would be reasons that the trade was entered and reasons for exiting.

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Student’s Question:

This chart where the 10 day moving average moves above the 60 day moving average a Doji appears followed by a hanging man. This looks like a good opportunity to short the market…would you agree?


Power Course Instructor’s Response:

Yes...a hanging man at the apex of an uptrend can indicate that sellers are taking control.

Moreover, since this trade is also in the direction of the Daily trend, that would be another indication that shorting the pair is the way to go.

For a textbook example of a hanging man, take a look below...

Attached Images

  

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Student’s Question:

How can you control greed??? That has been my number 1 problem. I want money and I want it NOW. It’s been so hard to control greed. Then, I’m trying to control it by telling myself there are going to be better trades I just have to wait for them, but sometimes it just takes over.


Power Course Instructor’s Response:

You are not alone in trying to conquer this challenge. Also, the fact that you are aware of it and that it is influencing your trading is the first step toward dealing with it.

Have a definite trading plan in mind…one that is written out. Keep it nearby where you can reference it prior to placing any trade. It will be a strategy that you have tested and one that has put pips into your account, live or demo, over time. Not on every single trade as every trade will not be a winner but the trading plan you are using, overall, has been adding to your account size.

Then, only take trades that fit that trading plan exactly. If it does not measure up, don't take the trade. You only want to enter higher probability trades. This will help as far as just randomly jumping into a trade because it looks sort of OK or the “I just like to be in a trade” syndrome.

Next, never put more than 5% of your account at risk at any one time and always trade with at least a 1:2 Risk Reward Ratio in place.

A good book dealing with this topic and others about trading is Trading in the Zone by Mark Douglas.

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Hi Richard:

would u mind telling us your trading pattern. Do u trade through daily charts only? stop? etc. Could you also explain the best way to enter a trade that is identified on a daily chart. Should 4 hr & 1hr chart indicators should be showing the momentum in the same direction or need not to bother. I often get confused as to what chart to use for entries and exits. Because sometimes some trades i feel comfortable entering in but when i move to 1hr chart that shows indicators moving the price in the opposite direction. Can i just follow daily to indentify the trade for 1 to 5 days and make an entry using 4 hr chart and not bother about 1hr chart. What is your suggestion.
Thanks

Great question...

While I sometimes trade from the Daily chart, I primarily use it to determine the trend of the pair. Once I have determined the pair that I feel has the strongest trend based on the Daily chart, I will usually enter on a 4 hour or 1 hour chart...whichever time frame best optimizes my entry.

Here's what I am looking for...

Let's say the Daily trend is up. Given that, I know I will only be looking for opportunities to buy the pair as they will have the greater likelihood of success. (Trading in the direction of the trend offers us that edge.) Then I will look to the 4 hour chart and look for a retracement (a move against the Daily trend) to be finishing and beginning a new move to the upside. In other words, a fresh move back in the direction of the Daily trend. Sometimes that fresh move will present itself straightaway or I many have to wait for the set up to occur. I will also run through this same process on the one hour chart looking for the same set up.

Once that fresh move begins, an entry can be made with a stop placed below the lowest level of the recent retracement. (Stochastics, MACD or RSI can be used to further time the entry.)

You mention that sometimes the lower time frame charts are moving opposite the direction of the Daily trend. That is fine since it means that a retracement is taking place and once that is complete, we will be looking at an opportunity to enter the trade in our direction of choice...the direction of the Daily trend.

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Thank you, that clarifies.

You are welcome...

I am glad it was helpful.

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On the back of this, I'd like to mention that after three weeks of forex trading, we are starting to do things right.

My father and I have started writing our, combined, analysis in a diary. The diary is useful as we can see a whole day on one page, and if we want to look back, we simply turn to the date we want to review.

Before doing this, we were in the mindset of, we MUST place a trade every day, and we became impulsive. We were briefly looking at charts and, well, chasing the market, pulling out too early, or being stopped out for a loss; only a small loss, mind, as our money management is good (no more than 5% of the acct).
Since we started writing things in the diary, we have taken a step back, and carefully looked at the options. In fact, we haven't placed a trade for 3 days. At first I thought it was a kind of trader paralysis, afraid to enter the market; but no, we have been learning, consolidating knowledge and hopefully the dividends will pay out.

Best of trading to you all,


Lee.

Thanks for your post, Lee. You make some excellent points.

As you mention, it is far better to take fewer trades of a higher quality than to take many trades of a lower quality. Know what you are looking for and then only take those trading set ups...no compromises.

Also, if you are trading from longer term charts, you will find that fewer trades will present themselves compared to shorter term charts. But, those that do will provide higher probability entries.

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Thank you for your encouragement

My pleasure...

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Student’s Question:

The current activity was a little lackluster in appearence, so I went back a bit on this EUR/USD. I picked a candle pattern for my starting then drew in what I thought the support and resistance would have been at that point. I supposed an entry at the open of the next candle with a 50 to 100 pip risk to reward ratio.



Power Course Instructor’s Response:

You definitely have the right idea here. Especially if the Daily trend was up at this time as that is the direction we would want to trade...in the direction of the Daily trend. The 1:2 Risk Reward Ratio that you are employing is a solid strategy as well.

Once the Morning Star pattern completes, taking a long position at the opening of the next candle is a higher probability entry.

The only adjustment that I would recommend is placing the stop a bit below the lowest wick along the support line that you have identified. The reason is that once price has traded to a certain level, it quite possibly could trade there again. By giving your self a bit of breathing room, you lessen the risk of being stopped out prior to the pair moving in your intended direction.

Nice work...

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Student’s Question:

I like trading triangle patterns but have always been a bit confused about how to determine profit targets. Would you shed a little light on that? Thanks.



Power Course Instructor’s Response:

Sure…

In any type of trading scenario, not only triangles, the 1:2 Risk Reward Ratio can be employed. In other words, whatever stop the trader sets, double it and that will become your profit target or limit. So if the stop is set at 75 pips, then the limit will be 150 pips.

More specific to trading a triangle pattern would be the technique shown on the chart below. Plot the distance between the two extremes of the triangle’s range (line #1) and then take that measurement and when price action breaks out of the triangle formation in either direction, that distance (line #2) will be the price target objective. In other words, on the chart below, the price target will be the red line at the top of line #2.

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Student’s Question:

To tell you the truth I still don't understand the Risk - Reward Ratio.
Can you please give an example of this in a trade i.e. if trading EUR/USD how to apply this in a chart?

If you can show this in a chart that will be great.

Thanks



Power Course Instructor’s Response:

Sure...

Keep in mind that a Risk Reward Ratio is nothing more than where you place your stop and limit relative to your entry. For a 1:2 RRR, whatever amount you are risking based on your stop placement, double that amount and set that as your limit.

Take a look at the 1 hour chart of the EURUSD below...

Let's say that we entered the trade right now. Based on this chart, that would be at 1.4697. A prudent stop could be placed at the point on the chart labeled stop...roughly at 1.4640...57 pips below our entry. We double the 57 and we have 114. So we would add 114 pips above our entry and we would have 1.4811...roughly the area where we have our limit labeled on this chart.

For a 1:2 RRR, it all boils down to seeking to gain twice the amount we are risking on a trade.

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