How To Trade Retests Of Breakout Levels

Breakouts are one of the things you will see taking place all day in the forex markets.
The majority of breakouts end up being false breaks which means the market doesn’t
actually end up moving in the direction of the break and is simply a trap by the
professional traders to lure breakout traders into placing trades in the wrong
direction.

When a breakout does occur and the market moves in the direction of the break,
commonly you’ll see the market return to the highs or lows of the breakout, touch them,
then proceed to go off back in the direction of the breakout. Trading the retest of a
breakout point is not a new strategy, it has been around since the first technical analysis
books were released and is a method employed by traders all over the world.

Today’s article is going to be a small guide on how to trade retests of breakouts properly,
a large number of people trade retests incorrectly because the rules provided to them by
trading books and websites are not aligned with how the banks operate in the forex
market. We’ll begin by looking at the reason why a retest occurs after a breakout takes
place, then I’ll show you how to trade retests using a combination of zones and price
action and give you a couple of really I’m important rules you must follow in order to
trade the retests effectively.

What Are Retests At Breakout Levels ?

My understanding of a retest at a breakout level is where the market breaks out past a
high or a low and then soon after returns to the breakout point and moves back in the
direction of which the breakout occurred. Why this takes place in the forex market is
down to the bank traders needing to fill more buy or sell orders in the market. Before
the market breaks out from a high or low breakout traders will have pending orders
placed at the levels ready for when the market inevitably breaks out, when the breakout
finally comes the traders orders are executed and the traders are entered into their
breakout trades.

The breakout traders spend a little bit of time in profit on their trades as typically the
market will continue in the direction of the break for a small amount of time, the turning
point comes when the bank traders begin to take profits off their own trades, their profit
taking is what will cause the market to move back to the breakout point.
The breakout traders then must watch as the profit they were in on their breakout trades
steadily decreases as the market gets closer and closer to the breakout point where they
had their trades executed.

Having their profit get smaller and smaller makes the breakout traders scared of
potentially coming out of the trade with no profit at all, causing the majority of them to
close their trades while there is still a small amount of profit left. Different traders will
decide to close their trades at different times, the closer the market gets to the breakout
point the higher the number of breakout traders who will be closing their trades.

When the breakout traders close their trades orders will be put into the market which
the bank traders will use to get more buy/sell positions placed in the market.

Example.

The line on the chart above denominates the point where breakout traders will have had
pending orders to buy placed in anticipation of the market breaking out. You can see
how the market continues to advance higher after the breakout has took place, the banks
begin their profit taking an hour after the breakout occurs and the market begins to fall
back to the breakout point causing a retest.

An additional thing to pick up on is the reactive traders who would have placed buy
trades onto the candle which caused the breakout. These traders will also add a
significant number of buy orders into the market which the banks will use to fill more
orders when their profit taking grinds the market lower.
 Marking The Zones

Most traders when looking to trade a retest will mark the point where a breakout has
occurred using horizontal lines, a far better way of marking the points is using zones,
similar to how we do with supply and demand zones.

By marking the breakout point as a zone instead of a line, we give ourselves the benefit
of not having to guess which breakout point the traders used to enter their trades. If we
were marking the level using a line then we wouldn’t be able to discern which highs or
lows the market is going to return to, by having a zone we can cover multiple highs/lows
and include them in our total risk when trading the retest.

Using the example we have just talked about we can see there are two highs which
breakout traders could have used to enter long trades, we wouldn’t know which one of
these highs the market is going to retest, so marking the highs with lines means we may
have to take two trades. If we instead mark an area encompassing both highs then we
are able to remove some discretion from our decision-making process and also give
ourselves a point where we know the trade is likely to be wrong.
Here are the two highs breakout trades could have used as points to enter breakout
trades marked with a zone as opposed to a line.

You can see the zone covers the range of both highs, we now don’t need to worry about
trying to predict which high the market may return to as we have both included in the
size of the zone, we are also able figure out how much to risk on a trade by determining
the size of the zone.

In this case the size of the zone is 10 pips, which means when the market returns to the
zone and we are watching the lower time-frames for entries long the maximum amount
we have to risk is 10 pips, if you were using horizontal lines there wouldn’t be any way
for to work out the maximum you need to risk on the trade as it would be impossible to
judge how deep the market is going to drop into highs before moving back in the
direction of the break.

How To Draw The Breakout Zones

The zones you draw must encompass all of the highs or lows the breakout traders have
potentially gone long or short from.
In the example above we have two lows the breakout traders could have used to enter
short trades, we need to make sure our zones cover the lows of both lows as this would
have been the point where the breakout traders had their pending orders to sell placed.

Since this is a bearish setup the top of the zone needs to be drawn from the candle which
created the highest low breakout traders could have possibly gone short from, if the
candle which created the highest low is bullish then the zone needs to be drawn from the
OPEN of the candle, if the candle creating the low was bearish the zone needs to be
drawn from the CLOSE.
Once you have done this you drag the zone down to the lowest low where breakout
traders could have entered short trades.

In a bullish scenario the breakout zone needs to be drawn from the candle which created
the lowest high, in the example above we only have one high where breakout traders
would have placed long trades therefore we only have to draw the zone from one price
point as a opposed to two in the previous example. If the candle which formed the
lowest high is bearish the zone needs to be drawn from the OPEN. If its bullish it needs
to be drawn from the CLOSE.

Entry Into The Retest

How you enter into trades at retests of breakout level is by using candlestick patterns
such as engulfing candles or pin bars.
Here we have the zone which I’ve just shown you how to draw but on a 5 minute chart
instead of a 1 hour chart.

When you see the market break the lows (or highs for a bullish setup) you need to watch
as the market enters into the zone on a lower time-frame to see if there are any
candlestick patterns you can use as an entry into the trade.

In the chart above we can see when the market hit the area a bearish engulfing candle
formed, upon seeing this you would have entered into a short trade with your stop above
the high of the breakout zone. You could decide to put your stop above the high of the
engulf but you’ll tend to find you will unnecessarily lose money, because if the market
breaks the high of the engulf and you take a loss and then the market moves deeper into
the zone before reversing again, then you have basically taken a loss which could have
been avoided had you just put your stop at the high if the zone in the first place.

Don’t Use Pending Orders !

Like when trading supply and demand zones, taking trades based on retests of breakout
points should not be completed with pending orders.

You wont know if the zone is going to hold or not before the market reaches it, therefore
if you place a pending order at an area and the market blasts straight through it you will
have lost money which you could have saved had you used a candlestick pattern to enter
the trade.
 Additional Rules

There do happen to be some other rules you must take into account when trading retest
at breakout levels.

One of the rules is the level can only be touched once.

What I mean by this is if you have a zone marked on your charts and you see the market
return to the breakout zone and proceed to move back in the direction of the breakout
you must not use the breakout zone to place any more trades if the market returns. One
of the primary concepts of order-flow analysis is the idea that when a technical level has
been hit once its significance in the market decrease dramatically and the chances of the
market reacting to the level in the same way again is low.

Whilst this rule depends to some extent on the technical level being used, in breakout
retest scenarios the idea holds true as if the market to return to the breakout zone again
after already being touched the breakout traders who went either long or short on the
breakout will not be in their trades anymore, therefore its unlikely the bank trader will
be able to place any trades due to there being a lack of orders present in the market.

We can see the area I’ve drawn in orange turns the market on the first touch, but on the
second touch the market breaks the area easily and returns to a different technical level.

Another rule is the time it take for the market to return to the breakout point.
This rule is kind of similar to the rule I use in my supply and demand trading where if
the market fails to return to a supply or demand zone within 24 hours of its creation the
zone is no longer significant and its likely for the market to break the zone upon its
return.

The reason I use the same rule when trading breakouts is due to the way breakout
traders will not leave their trades open overnight.

Breakout traders will not sit and watch as the profit on their trades gets smaller and
smaller, they will always close their trades whilst they still have a little bit of profit left.

The breakout zone above has not had the market return to it for a significant length of
time, its unlikely for the market to reverse when it comes back to this level due to the
breakout trader not being in their short positions anymore.

My rule for trading breakout zones is the same for trading supply and demand
zones…….

“If the market has not returned to the zone within 24 hours do not trade the zone”

This rule is only valid for breakout zones found on the 1 hour chart, if you decide to
trade breakout zones on the daily chart then the rule is the market must return to the
breakout zone before the end of the month for it to be considered as a valid trading
opportunity.
 Summary

Today’s article was a great example of how you can take an existing strategy and
improve it by incorporating concepts from other trading strategies. (in this case the
zones from supply and demand trading) Not only does marking breakout level as zones
instead of lines make it trading retests easier, it also makes it more profitable.

Now you can quickly define how much you will have to risk on the trade as well knowing
when the probability of the trade itself has decreased significantly, if you would like any
help or further explanation of how to trade retests at breakout levels please say notify
me in the comment section below.
Why You Shouldn’t Trade Pin Bars As
Reversal Signals
The appearance of a pin bar is supposed to signal a reversal in the market but as you
have probably noticed on many occasions the price will not reverse and will continue
moving in the direction of the trend. The traders who trade pin bars end getting
frustrated with the pins not causing a reversal as this is what they have been taught
should happen by various trading books and websites.

If your one of these traders who is fed up with trading pin bars which end up failing then
I think today’s article may help you out because not only am I going to explain why so
many pin bars fail to cause a reversal, I’m going to give you a simple rule to follow which
will help you trade pin bars far more effectively.

What Type Of Pin Bar Is It ?

If you didn’t already know there are different types of pin bars which appear in the
market. When I say types I don’t mean one pin bar has a bigger wick than the other, I
mean the causes behind why a pin bar forms in the market can be different depending
on where the pin bar is found.

Traders are taught all pin bars are reversal candlesticks, they say when you see a pin bar
form the market is likely to change direction. What the teaches don’t tell you is the only
time a pin bar will cause a reversal is when the banks take a significant amount of profits
off their existing trades or when they’re placing trades in order to make the market
reverse.

Both of these actions are quite rare to see in the market, whilst bank traders do take
profits very frequently, its uncommon for them to take the amount profit needed to
cause a price reversal, even more uncommon is bank traders placing trades in order to
cause a reversal.

Most reversals happen in stages due to the way the banks wont be able to get their entire
trading position placing into the market in one go, this means seeing a pin bar form
because of banks placing trades to cause a reversal is actually a very rare event.
It’s likely most of the pin bars you’ve traded have been caused by profit taking, not by
banks buying or selling which is what most price action books/websites assume is the
cause behind all pin bars forming in the market.

When You Should Trade Pin Bar As Reversals

I want to make clear that I’m not saying pin bars should not be traded as reversal
signals, what I’m saying is you need to trade pin bars after you have already seen signs
of reversal taking place.

If you try to trade pin bars as reversal signals when the price is moving in the direction
of the trend, then you run the risk of accidentally placing a trade on a profit taking pin
bar instead of a reversal pin bar. This wouldn’t be a problem if it were not for the fact
you cannot determine if a pin bar has been created by profit taking until after the pin
itself has formed.

The image above shows three bearish pin bars which formed when the price was
advancing higher.

Common pin bar teachings would say these three bearish pins are valid for placing short
trades but as you can see none of them ended up working out profitably. Why they
didn’t work is down to the reason they formed in the first place, these pin bars were
created by bank traders taking profits off buy positions, not by banks placing sell trades
to cause a reversal.
When each one of pins above appeared, you wouldn’t know if they were caused by profit
taking or by bank traders selling, if you had placed a sell trade when any of the bearish
pin bars above formed, it’s highly likely you would have lost money. It may have been
possible to make tiny amount of profit on two of the pins, but overall unless you were
very quick on reacting to changes in the market there’s a high chance you will have lost
money trying to trade these pins.

Here’s an example of a bearish pin bar which formed AFTER the trend had already
changed.

It’s far safer to trade this pin bar than it is to trade the pins found in the previous image
as we have evidence of the price wanting to move lower. In the previous image we had
no sings that a reversal was about to take place, in the image above the price has already
dropped and broken two previous swing lows, if the price has already fallen then it
means someone must be interested in selling.

It may be the selling is caused by banks taking a large amount of profit off existing buy
positions, if that’s the case there is still a high chance the bearish pin bar will work out
profitably because the banks may want to take additional profits off their buy trades.

I think one of the most useful things you can do if you want to have more success
trading pin bars is trade in the direction of the most recent high or low.

This is something which I use when I’m looking to take supply and demand zone trades
but it’s just as applicable to trading pin bars because it will always mean your trading in
the direction of the current momentum.
People who trade pin bars rarely trade them in the direction of the most recent high/low
because they have been taught pin bars are supposed to cause a reversal, for example
when price action traders see the price moving higher they’ll place sell trades whenever
they see a bearish pin bar but neglect to place a buy trade when the see a bullish pin bar.

The traders see the bearish pin bar as a sign the whole up-move is about to reverse when
really its just banks taking profits off buy trades, if they stopped trying to predict when
the entire up-move is going to end and instead focused on placing trades in the direction
of the up-move itself they would be far more profitable trading pin bars.

If you look at the image of the three bearish pin bars you’ll notice they all formed
AFTER the price had already made a new higher high. A new high suggests there will be
further up-movement, therefore placing a sell trade after the market has already given
us a signal that it wants to move higher isn’t exactly the best way to put the probabilities
in you favor.

The Banks Use Pin Bars Against You

Because very few people realize there are different types of pin bars which can form in
the market, it means the common advice you get given when learning about why pin
bars form are actually a hindrance to you and beneficial to the banks because it helps
them make money.

For the banks to take profits off a trade they have placed they need lots of orders to
come into the market in the same direction to which they have placed their trade. If the
banks wanted to take profits off a sell trade, they would need other traders to sell, if no
other trades sold there wouldn’t be anyway for them to take profits, because taking
profits off a sell trades means you need to buy back what you sold at a lower price.

The point where lots of traders will place trades in the same direction is when a large
range candle begins to form, when traders who are watching the market see a big
candle, they place trades in the direction of the candle as it gives them the impression
that the price is about rise or drop considerably.

When enough of these traders have piled into the market the banks use their orders to
take profits off their own existing trading positions, the price begins moving in the other
direction because the traders orders have been consumed and what you eventually end
up with is a bullish or bearish pin bar.
Price action traders see the pin bar as a reversal signal and start placing their trades
expecting the price to move a large distance in the opposite direction, they don’t know
the pin has been created by profit taking because they mistakenly assume all pin bars
appear for the same reasons.

The orders which come into the market from the price action traders trading the pin bar
allow the bank traders to get more trades placed in the direction of the current trend.

Essentially the bank traders haven’t deliberately made a pin bar form in order to make
traders lose, it’s the price action traders lack of knowledge on why pin bars form which
causes them to make the wrong decision. If they knew there were different causes
behind why pin bars appear then they wouldn’t be tying to trade pin bars which form
against the trend.

If you want to trade pin bars more profitably then I suggest you begin thinking about the
reasons why pin bars form in the market, when you see a pin appear on your charts, look
at the previous price action and ask yourself “where have the banks placed their
trades ?” then think about what they need in order to be able to take profits off these
trades they have placed.

By doing this you should be able to determine what decision has caused the pin bar to
form in the market, if it’s a profit taking pin you know it has a low chance of causing a
reversal, therefore you know taking the trade is likely to result in you losing money.

Summary

The lack of information surrounding pin bars and other candlestick patterns makes it
very difficult for traders to trade them effectively, a lot of the advice which is already out
there does not give traders the right understanding they need in order for them to take
high probability pin bar trades, if a larger number of traders waited until they have seen
signs of the market reversing before taking a pin bar trade then they would be far more
successful trading pins, because they have confirmation that the market wants to move
in the other direction.

If traders try to trade pin bars which form against the trend such as when the market
makes a higher high or lower low then they are asking for trouble because they are
attempting to trade against the current momentum.
My final words are this, always trade in the direction of the most recent high or low, do
not trade pin bars which form when the price makes a new high or low, these are low
odds trades and more often than will cause you to lose money if you decide to trade
them.
Turning A Small Forex Account Into A Big
One Part 1
This is going to be the first of two articles where I outline some profit building
techniques for you to be able to use to increase the size of your trading account quickly
and safely.

Turning a small account into a big one is the dream of many forex traders, unfortunately
for most traders this is what it will remain as….

Most of the trading advice found online and in books advocates certain principles for
trading which sound like good advice on the surface, but in reality when applied to your
personal situation is actually very silly.

How To Make A Million From Forex

To make a million on one trade requires that you place a 1000 lot position. This means
for every 100 pips the market moves in your favor you will make £10,000, since we want
to make a million we need the market to move 10,000 pips.

Let me give you an idea of how far that is.

This entire down trend on EUR/USD is only 3500 pips.

If you had placed a 1000 lot position on the high right at the beginning of this down
trend and then proceeded to exit at the low (which would have been impossible) you
would have made £350,000 which, while a lot of money, still isn’t the million we want.

The only way to make a million from a movement like this is to stack multiple trades
onto one movement, this way we are increasing the size of our profit even though the
market is moving a smaller distance.

If we were to have three 1000 lot trades placed onto the downtrend above we would
make £350,000 on each trade which works out at just over 1 million.

The problem is most traders when staring out do not have the funds required to be able
to place 100 lot positions let alone 1000 lots.

For me to be able to place a 100 lot trade require me to have £400 available in my
trading account, this is probably more than what most people are starting out trading
with.

Then there’s the issue of stop-loss.

A 10 pip stop-loss on a 1000 lot trade works out at £1000 risk, so before we can even
think about placing trades this size we need to scale up from lower amounts.
 Scaling In

Scaling in requires us to find a pre-existing trend or movement in the market then place
multiple trades onto this trend with each successive trade being placed at a higher
amount than the last.

This method begins innocently enough, our first trade will be at our typical trade size
which we usually trade with, then, as the profit begins to build up on our first trade we
will take some of the profits off the position and use them to place another trade in the
same direction at a higher leverage.

Now we have two trades in the market both making money for us, the important thing to
remember is the second trade we placed will make more money then the first in a
shorter amount of time, meaning we can place our third trade sooner rather than later
and at an even higher leverage.

After taking even more profits of our first two trades we can placed our third trade. The
size of the third trade will determined by the profits we have taken off of the previous
two trades.

If you’ve looked at my article ‘Daily Charts Vs 1 Hour Charts’ you might remember this
image:

In that article I described how I traded the one pin bar above on the daily chart as well
as trading another three which were found on the 4 hour chart.
Now although I didn’t scale in on these trades I thought they highlight a good example
of a how scaling in should be done correctly.

Let’s run through how you would have scaled in using the example above.

Our first trade would have been on the pin bar marked with an x below It on the chart,
this is what we call the initial trade.

The initial trade is always taken with the same trade size as you usually use on all your
other trades.

The trade we take on the second pin bar will be placed using a portion of the profits
we’ve made on the first trade, looking at the image you can see the distance the market
moved from then first pin bar to the second is around 500 pips.

This equates to around £500 profit if your trading at the lowest possible amount.

When we see this new pin bar we move the stop on our first trade to the price at which
we would be in £250 of profit, this is marked with a red line on the chart.

Now no matter what happens we have secured £200.

We are going to use this £200 on our second trade with the newly formed pin bar.

The distance of the stop from the entry on the second pin is 80 pips, meaning we size of
this trade is going to be 3 mini lots: £250 ÷ 80 = 3

We place the trade at 3 mini lots, its important to note that we still have the first trade
running, as the market continues higher this trade will accumulate additional profits for
us.

The Last Trade

On the third and final trade we are going to use profits from both of the previous trades
to place an even bigger trading position.
When this 3rd and final pin bar forms our first trade is in profit of around £1270 with
the second trade in profit of £2400 even these two trades on their own have made really
good profits for us, because of this, we only want to use the total amount of money made
on the first trade to decide how much higher leverage to use on this third and final trade.

50% of £1270 = £635

So £635 is the maximum we are going to place on this last trade.

Now the stop-loss distance on the last pin is 100 pips.

Which means we can place a trade at 6 mini lots, twice as big as the second trade! Don’t
forget we also have the first two trades still running making us money!

The third trade gets placed, after 7 days the profit has already topped £1800 at this
point it would be worth considering to take profits on the last two trades.

Both of these alone will of netted you £5200 and this is without counting the first trade!

What I would suggest you to do is upon closing the final two trades, keep the first trade
running so if you see any more pins you can keep using the profits from the first trade to
then scale in again, repeating the proceeds I’ve outlined above.

This method can be used on all time frames, the example above is best suited to a longer
term trader such as someone using the daily chart, a day trader could see a trending
movement on the 5 minute chart and scale in, in the exact way described above, there
really are endless variations you can come up with when implementing this method.

Why Having Multiple Positions Gives You More Freedom

One other benefit of scaling in is it gives you the ability to play around with your trading
methods a bit.

Even if you only have one trade placed in a trending movement the possibilities it will
open up to you are endless, for example, instead of placing your second trade at a higher
leverage than your first why not place it at the same amount?
Think about it

Instead of having two trades placed, one big and one small, you can have lots of small
trades all running at the same time.

If you place ten trades at the lowest leverage available that’s basically the equivalent of
having one 10 lot position running anyway.

This gives you more freedom because the individual risk on each one of these 1 lot trades
is still really small yet your making equivalent profits to that of a single 10 lot trade!

Another benefit to having multiple trades running at once is the effect it has on your
psychology.

I think most traders trade in a way where, they place one trade then, wait for the
outcome before placing another trade, usually the thought never occurs to them to place
more trades, their eyes will be glued to the screen watching the market to make sure
they don’t lose on the current trade.

If you’re in a winning trade you should be placing more trades onto that same currency
in the same direction, you can use the profits you’ve taken so far to increase the size of
the stop-loss on the new trade, so although another setup you use may not appear in the
market you can still place a trade based on something else just to get another trade
placed.

Summary

Turning a small account into a big one is no easy feat to accomplish, there usually aren’t
many opportunities to scale into trades like I’ve shown you in this article however ,I’ve
developed and refined one more technique you can use to build your account up.

This method does not require you to have much money in your account nor does it need
you to place many trades, all it takes is you to be able win on two trades in a row in order
for it to be successful.
Turning A Small Account Into A Big One
Part 2
The second article in this series is going to focus on a rather unconventional account
building method I began using way back in the early days of my trading career.

The method I’m going to show you today may raise a few eyebrows from established
traders who always propose that you should trade with a consistent risk size, but in my
experience I know the only way to turn small trading accounts into big ones in a short
space of time is by using unconventional methods and tactics not usually talked about in
normal trading literature.

Probability

To understand how this method works I must first talk about probability.

If we were to have a trading strategy which gave us a 50-50 chance of making money on
each trade would you know what sequence of wins and losses you would have ?

No, there’s absolutely no way to know.

But what we do know is at some point there are going to be times when we win multiple
trades in a row and lose multiple trades in a row. We could have winning streaks where
we make money on 7 consecutive trades and we could potentially encounter times when
we lose money 3 or 4 trades in a row.

Even though its impossible for use to work out when these winning and losing streaks
are going to happen if we know at some point they are guaranteed to happen it means
we can use them to make a lot of money

This is the general idea the profit building strategy is based on.

For the method to work correctly we don’t need to go on massive winning streaks where
we make profits on 10 trades in a row, in fact we only need to win on two consecutive
trades in order to make good money.

Stake=1 means 100 pip movement makes you £100

Stake=2 means 100 pip movement makes you £200

The higher the leverage you use the smaller the distance the market has to move in
order for you to make a lot of money.

To make £1000 trading at the lowest leverage available means you will have to win ten
trades in a row without losing, whilst making £100 on each trade in the process.

This is equivalent to the market moving 100 pips ten times with you getting the
direction right every single time.

It would be almost impossible for a new trader or even experienced trader to achieve
this.

But I wonder how long it would take to make £1000 if you were placing trades at a
leverage ten times bigger than the lowest leverage available ?

In other words, stake=10 for people using a spread betting broker.

This would mean the risk on each trade (assuming the distance of your stop from entry
is 10 pips) would be £100.

The market would still have to move 100 pips but we would only need win on one trade
to accomplish this compared with ten if we were trading at the lowest leverage available.

The main problem for most traders is they don’t have enough money in their account to
consistently trade at this size, typically, I believe the average forex trader is trading forex
with an account under £1000, now assuming their risking 1% of the account on each
trade that means the maximum they should be losing is £10.

The method I’m going to share with you now does not require you to have thousands of
pounds available in your trading account.

Even if you have as little as £200 in your trading account you will still be able to
implement this account building strategy successfully.

The Method
The basic idea behind this strategy is when you make money on a trade you should
increase the size of the next trade you plan to place.

Most traders do not do this, they always trade with the same leverage on every trade
until they reach some sort of goal they’ve set themselves.

For example you may have £1200 in your trading account and you currently trade 1
micro lot on each trade, your target might be to reach £2000 before beginning to trade 2
micro lots, this is probably going to take a long time so to speed things up a bit you can
try implementing my profit building method.

Skip the video below to the 34:38 mark and listen to what the former pit trader
(basically day trader ) says about trading. BTW the video’s quite funny, the dudes a bit
smashed.

Profit Building Example

Lets say you’ve been trading with 1 micro lot on each trade you place (if you’re using a
spread betting broker like me this will be represented as stake =1 ) and you have just
made £50 on your latest trade.

On the next trade instead of placing the trade at 1 micro lot you instead increase to 2
micro lots.

So now to make £50 on this new trade the market only has to move half the distance it
did on your first trade.

First trade at 1 micro lot, market needed to move 50 pips to make £50

Second trade at 2 micro lots the market only needs to move 25 pips to make £50

Simple enough right ?

Important Guideline’s

Whoa now hold on a minute! there’s a few really important rules you need to know
before you start using this method in your trading.
The first, and probably most important rule, is to always account for losses before
increasing the size of your next trade.

This is best explained with another example.

Imagine you have lost your previous 3 trades and collectively the losses you’ve made
total £30.

You place another trade, the market moves in your favor and you end up making £100,
now you want to implement the method I’ve outlined to you and increase the size of the
next trade you plan on placing.

However, before you work out how much to increase it by you must first take away your
previous losses from your recent gains.

£100 – £30 = £70

£70 is the total amount you have to determine how much you risk on the next trade.

Important Note:

Make sure you always work this out before increasing size. By always accounting for
losses beforehand your deliberately making sure not to trade in a reckless way which
could harm your trading account, if you fail to account for your previous losses and
end up losing on the trade which you increased the size of, you will not only need to
make back the loss on that trade but also, the three other losses beforehand.

What I tend to do is take half of what I’ve made then place the next trade at that size.

In the example above the total after accounting for losses was £70, so the maximum
amount you want to risk on your next trade is £35.

With £35 being the total we are willing to risk on our trade, the other £35 which we have
left over we can keep as profit.

Stop Distance
Another thing that determines how much you can increase the trade by is the distance
of the stop-loss from the entry.

If the distance of the stop is 10 pips that means, using the example above, the total
amount you can risk is 3 mini lots.

In a scenario where the stop-loss was 15 pips away from entry like in the image below, it
would mean you should only place a trade at 2 mini lots which works out at £30 total
risk, and you keep the remaining £40 as profit.

Watch Out For News!

The final thing you must pay attention to when placing trades at an increased size is
news events.

Big high impact news events can have the ability to cause slippage on your stop losses,
meaning you could potentially lose more than what you originally anticipated.

Although this is quite rare (its only happened to me twice in many years of trading) it
still has the potential to happen, so be sure to not place trades with increased size when
any of the following news events get released.

Non Farm Payrolls/NFP – Usually have a major impact on the markets when released
FOMC Statement – Refrain from placing any trades at all during this one as things can
get really messy in the markets.

Interest Rate Announcements – Just stay out the market completely with these.

The other news events should all be okay in terms of their impact on the market and any
trades you may have placed, although some will have a red icon meaning their high
impact, the effect they have on the market will not be enough to cause you slippage on
your trades.

Summary

My goal with this two-part series was to give people real and genuine methods for
building small accounts into big ones, although I think many people will find the
method I’ve presented above controversial as it contradicts a lot of what traders have
been told during their learning process, I feel as though if you follow the typical trading
advice you will not really make any progress or advancement in your trading career.

One of the often repeated facts of trading is 95% of traders lose money consistently,
while this figure many not be entirely correct (Oanda reported around 60% of their
clients lose money) it still shows us the normal trading advice isn’t getting people the
results they expect, if it was, a lot more people would be making money.
Daily Chart vs 1 Hour Chart – Which One
Should You Trade ?
Today I’m going to explain why using one time frame is not better than using the other
and also, what time frame you should trade depending on the lifestyle you currently
have.

I’ve seen other forex related website’s talk about how using one time frame over the
other will result in higher probability trades.

I completely disagree with this statement and will explain the reasons why this method
of thinking is not only stupid, but holding you back from making profits in the market.

Lets begin, so some people seem to be of the belief that trading one time frame is better
than the other.

For example, someone could say that a trade taken off the daily chart has a better
chance of working out than say, a trade taken off the 1 hour chart.

What I would like to know is how they’ve come to this conclusion ?

Because all higher time frames are made up off information from the lower time frames,
one candlestick on the daily chart represents a days worth of market action, if we were
to go onto the 1 hour chart and mark the beginning of the trading day, we would find
that 24 1 hour candlesticks would make up the one candle we see on the daily chart.

So how can one time frame be determined as better than the other when their both
comprised of the same information ?
The blue line on the chart above indicates one candlestick on the daily chart.

This is that same candle seen on the 1 hour chart.

All the candlesticks seen between these two lines make up the one candlestick we see on
the previous image.

So if the candlestick on the daily chart is made of the 24 candlesticks we see on the
second image how can one time frame be better than the other?

Their made up of the same information, what you’re seeing on the daily chart is just 24 1
hour candles combined together to make one daily candle.
 What Time Frame Should I Trade ?

Really it comes down to preference.

Some people believe that by trading extremely low time frames they can make a lot more
money than if they were to trade higher time frames – I’m not disputing that they
probably can, given they can learn the psychological skills necessary to deal with the
way the market moves on these lower time frames.

Making money using things like the 1 minute and 5 minute charts isn’t a matter of how
good you are at analysis, of course you will need use things like support and
resistance/candle patterns in order to identify opportunities but those things will not
help you with the speed at which the market moves on these time frames.

This speed is the problem.

All the trading decisions you make will have to be done much faster than if you trading
the 1 hour chart for example.

In addition to this, you will be making and losing money lots of times throughout the
day, this in itself can be quite difficult to deal with, to be up £30 in one hour is a great
feeling but then to be down £50 the following hour is horrible and frustrating.

I tend to stay away from trading these lower time frames for this very reason.

The level of concentration along with the mental discipline required to deal with making
and losing money at such a fast pace is too great for most people me included, I need
things to be slower so I can have enough time to formulate all my analysis and plan my
trades in advance, due to this I stick with placing trades using the daily chart and the 1
hour chart.

No Free Time – Use The Daily Chart

The daily chart is perfect for people who would like to trade when they are not free
during the day if you have a job for example, most of the strategies I layout on this site
can all be used on the daily chart.

They only take a few minutes at the end of each day to set up so you can go to work or
whatever, come home and see that you have made some money, there’s no better feeling
than coming home after work looking at the trade you placed the night before and
realizing you’ve made a weeks wages in one night.

If there is one downside to trading the daily chart it would be that it requires more
money to be able to trade effectively.

A trader who does not have a job will not likely have much money to begin trading with,
so if you are one of these people I suggest you shy away from placing trades based upon
the daily chart. The overall risk on each trade will be too great in terms of how much
money you have in your account, if you put £200.00 into a trading account it works out
to you being able to place around five trades on the daily chart assuming your trading
pin bars and engulfing candles.

Compare this with trading off the 1 hour chart which, with the same £200.00 works out
to you being able to place around 20 trades.

If you work full-time and you’re a beginner trader then trading using the daily chart is
fine because if you do happen to lose during the learning period, you’ll be able to recover
the loss using a small bit of the money you make from work.

Compare that with someone who doesn’t have a full-time job and is free for most of the
day but does not have much money to invest in the markets then you can see where the
advantage lies.

Lots Of Free Time – Use The 1 Hour Chart

If you do happen to be lucky enough to be free during the day then I suggest you trade
using the 1 hour chart.

The 1 hour chart offers flexibility in terms of what you want to do, the market moves
slow enough for you to be able to analyses the chart for trading opportunities and also
generates enough trades so you have lots of decent chances of making money.
Also, the size of the stop-loss will be much lower than if you were trading the daily chart.

Because the daily chart contains a days worth of information, when you place a trade the
distance of the stop-loss from your entry is larger, meaning you have to put more money
at risk, on the other hand due to the 1 hour chart containing only an hour’s worth of
information the stop distance is smaller, allowing you to risk less money which is great
for people who have small accounts.

Combining The Daily Chart And The 1 Hour Chart

If you like, you could use the daily chart and the 1 hour chart together, that way your
placing longer term trades which you can make more money with and short-term trades
which will make up for any losses you might take.

This is the strategy I’ve been using for a while now and so far the results have been
pretty good.

Check this out.

On the daily chart above you can see my first trade was taken just before the market
started moving higher, unfortunately this was the only pin bar signal that appeared in
the market during this up move on the daily chart.
So after I had this trade placed I switched to the 4 hour chart to see if I could find any
more pins to trade.

(I usually use the 1 hour chart for this but MT4 was messing me about and showing a big
gap in the market so I had to use the 4 hour to see the pins)

The three ticks on the chart show the additional trades I took after trading the pin on the
daily chart.

All of these trades were successful minus one which I ended up losing money on. The
first two trades I closed around the same time I exited the daily pin trade, however the
other one I continued to hold until the market hit the 109.00 level.

These trades made me pretty significant amounts of money, this just goes to show the
potential of combining two time frames together.

If you listen to the gurus online who propose that you should only trade one time frame
this opportunity would be missed by you. There was only one pin bar signal on the daily
chart yet there were an additional three found on the 4 hour chart! I almost made more
money off the last pin bar signal than I made off the first one on the daily chart.

Why limit yourself to you one method of thinking, you need to open your mind to all the
opportunities available if your going to make it big trading forex online, combining
multiple methods of analysis is the quickest way to generate large amounts of trading
capital.
How To Trade Engulfing Candlesticks
In Today’s Article You’ll Learn:

 An Introduction Into What Engulfing Candle Are And What Role They Play In The
Market
 How To Identify Engulfing Candles On Your Charts
 An Easy Method You Can Use To Trade Engulfing Candlesticks Effectively

What Are Engulfing Candlesticks ?

Another candlestick which is highly important in your knowledge and understanding of

the market is the engulfing candle.

Engulfing candles are another weapon to add to your arsenal of price action trading
strategies, like pin bars they are very powerful when found in the right location and can
be traded without risking a lot of money. Before we talk about how to trade engulfing
candles, I need to give you a bit of background as to what engulfing candles mean in the
context of the market as well as a how you identify them on your charts.

What Do Engulfing Candles Mean ?

Okay firstly engulfing candlesticks begin and end every movement in the market.

So whenever you see the market go from being in an up-trend to a downtrend at the
beginning of that movement an engulfing candlestick would have been present in some
way shape or form.

This is due to what the engulfing candle itself represents.

You know it takes a lot of money for the market to change direction ?

Have you ever heard Newtons law of motion ?

Newton’s law of motion states that an object in motion will stay in motion in its current
direction until acted on by an opposing force which is equal to or greater than the
current force causing the object to move.

See any parallels between this law and trends in the market ?

Lets rewrite the law:

The trend will keep moving in its current direction until enough people decide to come
in and buy/sell which causes the trend to either stop or reverse.

You know I remember reading somewhere that to move the price of the exchange rate of
EUR/USD by 1 pip requires 50 million !

I know unbelievable right think of how small a distance that is in the market !

Engulfing candles are the result of big money coming into the market usually by large
banks or other financial institution’s.

This is what makes engulfing candles such a formidable trading strategy.

If a large bank has come into the market and brought then its highly likely the market its
going to go up, these institutions don’t mess around when it comes to making money,
they want to make the maximum amount of cash, to do that they constantly need to
change the direction of the market in order to make people lose money.

What Do Engulfing Candlesticks Look Like ?

Engulfing candlesticks, while not as obvious to identify as pin bars, are still pretty easy
to find on your charts.

The one defining characteristic of engulfing candlesticks which makes them stick out
from the other candles you’ll see on your charts, is they have a large body which is
always bigger in size than the body of the candlestick seen immediately before it.
The image below illustrates this.

The name engulfing comes how the engulfing candle wraps itself around the previous
candle like you can see in the image above.

The setup begins when we see a large bullish candle which happens to be immediately
followed by a bearish candle, this second candle is a bearish engulfing.

Notice how the body of the bearish engulfing candle is bigger than the body of the
bullish candle seen before it.

This is what you are looking for when trying to identify engulfing candles.
Here’s an example of a bullish engulfing candle.

The same characteristics are present in this image as in our bearish engulfing candle
example.

The only difference here is, instead of the previous candle being bullish its bearish, the
body of this bearish candle gets completely engulfed by the body of the bullish engulfing
candle.

Important Note:

The engulfing candlestick itself must be the opposite of the candle before it.

In other words if your were trading a bearish engulfing candle, the candle in which it
engulfs must be bullish, you cannot have a bearish engulfing candle engulf a bearish
candle, if it does it’s not considered an engulfing candle.

This is true for the bullish engulfing as well, a bullish engulfing must engulf a bearish
candle for it to constitute to being a trade setup.

How To Trade Engulfing Candlesticks

We trade engulfing candles in a pretty similar way to how we trade pin bars.

Although there are some key differences between the two methods there are also a lot of
similarities.

Just like we would when trading pin bars we’ll use pre-marked levels of support and
resistance as our places to which we are looking for engulfing candles to form, as well as
always trading in the direction of the current trend to give us the best possible odds of
having a successful trade.
Trend Direction

We determine the direction of the trend by analyzing the swing highs and swing lows the
market has created.

If you would like a full guide on how to determine the direction of the trend then check
out my article on trends in which I take you through a simple step by step process which
will allow you to know definitively what the current trend in the market is and, which
way it is likely to go in the future.

Make Sure Its The Right Size

One thing that traders tend to do wrong when it comes to trading engulfing candlesticks,
is trading ones which are the wrong size.

Although engulfing candlesticks come in various shapes and sizes,( some can be bigger
than others for example), how big an engulfing candle is has a dramatic effect on
whether your trade will end up being successful or not.

What I mean by this is we only want to trade engulfing candles that fit within our risk
thresholds.
The engulfing candle in this image is far too big for us to be able to trade effectively.

Even though all the characteristics of a typical engulfing candle is present in this
example, the size of the candle itself means the distance of our stop-loss from our entry
point will be unfavorable for us in terms of how much we are risking in relation to how
much we can potentially gain.

Engulfing candles like the one in the picture above tend not to work out as often as
smaller engulfing candles.

What you’ll find if you do trade an engulfing like the one above is, shortly after placing
your trade the market will move against you, the reason as to why this happens is based
upon the psychology of the losing traders who participate in the markets.

Many people who trade currencies do so not based upon a particular method or strategy
but on reactive tendencies.

Commonly what these reactive traders do is they will see the market move up or down
strongly as evidenced by large bullish or bearish candlesticks and then enter traders in
the direction of that movement, no analysis will be done they’ll just place the trade and
hope that it works out.

The reason they do this is due to a common psychological pitfall that effects many
traders called fear of missing out.

In the traders mind they feel like if they don’t place a trade on this movement then their
going to miss out on a lot of potential profits, their decision-making process is based on
reacting to quick changes in the market rather than anticipation and prediction methods
like I teach on this site.

These traders have yet to learn the importance of patience in their trading so as usual
they tend to lose money.
You don’t want to trade engulfing candles any bigger than the one in the image above.

Trading engulfing candles any bigger than the one seen above means you are running
the risk of being in a short-lived market movement in which you wont be able to make
much money or even worse lose money.

I understand knowing if an engulfing candle is the right size can be quite subjective,
unfortunately I cannot give you a concrete answer as to what size an engulfing candle
should be, in time, which engulfing candles you should trade will become more clear to
as you will have had much more experience in identifying and trading them.

Note:

As long as the engulfing candle has a body bigger than the previous candle’s body it’s
considered an engulfing, even if its only marginally bigger, if the body is any smaller
than the candle before it it’s not an engulfing setup.

Entering The Trade

Your entry on an engulfing candle setup is made when the candle closes, I talk about
the importance of this in the pin bar article.

What this means is if you see an engulfing candlestick on the 1 hour chart which you
have decided to trade (and lets say its 15 minutes until the end of the hour) you must
wait until the end of the hour before placing the trade, if you place it before, you run the
risk of the engulfing candle developing into something else entirely.
For example, the shape of the engulfing candle could change into a candle where the
body itself does not engulf the body of the previous candle thus making it not an
engulfing candle anymore, so in this situation your now stuck in a trade based on
something completely different to your original idea which, if not acted on quickly, will
end up with you losing money.

The entry itself will be made using a market order, pending orders do not tend to work
well when trading engulfing candles.

What About The Stop Loss ?

The location of your stop-loss when trading engulfing candles is exactly the same as the
position I showed you for trading pin bars.

If your placing a trade on a bullish engulfing candle then your stop must be placed 10
pips below the engulfing candle low.
For this bearish engulfing we would put the stop 10 pips above the high of the engulfing
candle (it’s a bit difficult to see the high in the image above)

When Do I Move The Stop ?

When it comes to moving the stop-loss on engulfing candle setups the rules we use are
the same as the ones we follow for moving the stop on pin bar setups.
When the market makes a higher swing high (if your trading a bullish engulfing) then
you move your stop-loss to the entry point of the trade (if you don’t know how to do
this check my article on stop losses).

If you have placed a trade based on a bearish engulfing candle, when the market makes
a lower swing low you move the stop to your entry point of your trade.

Summary

The main thing you have probably gathered from this article is how similar trading
engulfing candles is to trading pin bars. I mentioned in the pin bar guide that the next
step you should take after mastering pins is to start learning how to trade engulfing
candles.

The many similarities between them is why I suggested this, making the transitions
from trading pin bars to trading engulfing candles is very simple because half of the
information is already known by you.

If there’s one downside to trading engulfing candles it would be not being able to trade
them on the daily chart.
This means if you work during the day its going to be difficult to add engulfing
candlesticks to your trading strategy, this is because the distance of the stop-loss from
the entry point is much larger when trading engulfing candles on the daily time frame
compared with trading them on the 1 hour chart, the risk reward ratio is not favorable
and if you do happen lose money on a trade it will be tough for you to make it back.

Fear not though because currently I’m working on figuring out a method of reducing the
risk on the engulfing candles setup so your able to trade it on the daily chart, it may take
a while to do this but I’ll keep you updated, hope you enjoyed the guide thanks for
reading.
The Biggest Secret In Forex Trading –
Zero Sum Markets
Today’s article is going to focus on something which is really important in your
understanding of the market, if your someone who’s been trading the markets for a
long time and has yet to achieve any kind of substantial success then this article may
just provide you with the ‘aha’ moment you’ve always wanted.

I named this article ‘the biggest secret in forex trading’ because I believe if more people
really understood what I’m going to be sharing with you today they would achieve much
greater success in the markets.

Unfortunately for reasons I don’t know, this ‘fact of the market’, rarely ever gets talked
about on trading websites and books, I’m not sure if it’s because the people writing the
books even know about it themselves, or maybe if they purposely choose not to discuss
or talk about it.

The really strange thing is it’s one of the most important things to have knowledge on in
the market, if nobody ever talks about this rule then that means either they don’t know
this rule even exists or they know it exists but don’t want anybody else to know about it.

Believe it or not there are certain aspects of the forex market which make it very similar
to a game.

Think of these aspects as if they were like rules in a game.

These rules directly impact the behavior of traders in the markets, it doesn’t matter if
you’re a retail trader trading from home like you and me or a professional trader
working in a hedge fund, your both controlled by this rule.

Poker And The Forex Market

Have you ever played poker before ?

In a game of poker how many winners are there at the end of a game.

One right ?

To win in a game of poker you must have the largest amount of chips/money at the of
the game.

Where does this money come from ?

The other players!

How much you can potentially gain in a game of poker depends on how much money the
other people have decided to risk, if there are four players in a game of poker and they
all decide to risk £20,000 each, the person who wins at the end of the game will acquire
£60,000.

There can only be one winner.

Now for the important part, the poker example described above is almost exactly how
the forex market essentially works.

Contrary to popular brief no money actually gets made in the forex markets, instead
what happens is it gets transferred from one set of people to the other, the same as in
poker.

In trading the set of people who are characteristically said to always make money are the
bank and hedge fund traders.

The money these traders make comes from the people who typically tend to lose money
in the market, which are retail traders with no professional trading background.

Retail traders commonly believe the bank traders who consistently make money have
strategies and tools which they don’t have access to.

For the most part this is incorrect, although they do have advantage when it comes to
information flow (for example they may have a heads up on what impact a news event
might have in the market before its released ) they generally have access to the same
tools as us, the only difference is they use them in a different way.
Whereas retail traders will look at a chart of currency in terms of technical analysis
i.e support and resistance, swing highs and lows etc the bank traders are looking at
these tools to but from a different perspective.

I can sum the difference in perspective up with a statement.

Retail traders are trying to predict the market direction using price.

Bank traders are attempting to predict the market by understanding what the retail
trader is going to do.

This shift in perspective is what most retail traders are lacking, they think the best way
to predict the market is by using tools based off of price (basically all of technical
analysis), they haven’t realized the reason the market moves is due to people making
trading decisions.

What Really Happens In The Market

Each day in the forex market how much money can be made is entirely dependent on
how many people decide to put money at risk.

If 100,000 people place a trade tomorrow and they have all risked £10 each that means
the maximum amount of money that can be made for that day is £1,00000.

Now if we woke up tomorrow and no one decided to place a trade then two things would
happen:

Number 1 nobody would be able to make any money.

Number 2 the market wouldn’t move anywhere.

Nobody would make any money because there’s none at risk, the market wouldn’t move
anywhere because no ones placed any trades.

This is why understanding the implication of what it means to be trading in a zero sum
market can have a dramatic effect on your trading.
Whenever you make money on a trade how much you make is determined by how many
people have lost, conversely when you lose money on a trade that money has been taken
by another trader or traders who have anticipated the market direction better than you.

If your analysis focuses on anything other than identifying where people are gonna lose
money then your potential profits will be much smaller than those who do.

The traders who understand what it means to be operating in a zero sum environment
as well as several concepts that come with it are the people who tend to make it big
trading forex, not because they use some special tools that we don’t have access to but
because they’re looking for market conditions which are going to make lots of people
lose money.

They know they only way for them to make profits is to identify a situation where a lot of
people are likely to lose money by taking some course of action ( lets say placing a buy
trade for example) then taking the opposite action, selling against the people who have
brought.

This is why you commonly see people make gigantic profits during financial crashes.

Look at John Paulson for example.

When the markets crashed in 2007 he made 4 billion dollars in a single year betting on
the mortgage crisis that would eventually bring about the major rescission which bought
the financial integrity of the world to a standstill.

How was he able to make 4 billion in one year?

Because he knew a situation was setting up that was going to cause a lot of people heavy
financial loss.

Simple. This is what you need to be doing when looking at your charts for trading
opportunities.

Real Trade Examples

In my supply and demand article I talk about how the strength of the move away is not a
determining factor in whether the zone is considered strong or not.
You may remember this image I used to explain the point.

I want you to look at this image and think about the psychology of the people who are
short when the market moves up creating this demand zone.

The banks have brought down here because they know if the market moves up all the
traders who are short in the market will probably close their trades, resulting in the
banks making significant profits.

Bank traders know trading forex is a zero sum game therefore their behavior in the
market will always be based on making as many people as possible lose money.

This is a common example of how bank traders take money from the retail traders.
Although this image is taken from the 1 hour of EUR/USD it could just as well be any
time frame.

You can see I’ve marked an area in orange, this area is where the banks and hedge fund
traders are placing their sell trades.

Before the market drops lower after the second arrow the traders who have brought
would have still believed the market has the potential to move higher, it wouldn’t have
looked like the market was about to drop, this causes some of them to continue holding
their trades, another set of traders also perceive this an opportunity to join the trend,
they identify this as a pullback so they’ll start placing buy trades with the expectation
that the market is going to continue rising.

When the market does drop out the area many of the retail traders who brought on the
big bullish candle immediately close their trades due to the shock of being faced with a
sudden loss, this allows some of the bank traders to take profits on their trades because
now there’s an influx of sell orders hitting the market.

You’ll notice a second move up into the orange area, this happens because the bank
traders were not able to place their entire trade into the market on the large bullish
candle, the market makers will purposely move the market back up into this zone to
make retail traders buy again and make anybody who happened to sell on the down
move close their trade resulting in even more buy orders coming into the market.

Now they have loads and loads of buy orders available to place the remaining sell orders
from the banks.

When this is completed the market begins moving lower and eventually the process
described above will repeat itself in the other direction.

Summary

The example I’ve shown you here is not an isolated incident.

It happens everyday on every currency on every time frame. The banks will always make
the market move in the direction which causes the greatest amount of financial damage
to the maximum amount of traders.
When you look at your charts what your really seeing is people making and losing
money.

You too can trade like these banks.

All you need to do is think carefully about what it means to be participating in a zero
sum game, if you do It’ll change your perception of the market, a whole new dimension
opens up when you begin thinking about how money really gets made and lost in the
markets. Gone will be the days of just looking at technical levels and using them on their
own to anticipate market direction, now you will be thinking about what the other
traders looking at these levels are likely to do and basing your trade-off of that instead.
Stop Loss Orders – Risk Management
Basics
What Are Stop Loss Orders?

I think I can speak for all of us when I say that losing money is something we all hate.

But you know what the only thing worse than losing money is ?

Losing all your money.

Losing all of your money on one trade is an absolutely disastrous situation, it generally
shouldn’t happen, but in some cases it does, and if it does happen, the pain it will inflict
on you will be massive.

Stop loss orders were created so that there is always a limit to how much you can lose on
any one trade, if you were to place a trade with no stop-loss on, then theoretically you
can lose an unlimited amount of money.

In reality though your trading broker will close your trade when all the money in your
account has been depleted, but still, losing your entire account on one trade is a
situation you really don’t want to be in.

The Worst Case Scenario

Now I’m going to show you what can happen if you fail to place a trade without a stop-
loss order.

Keep in mind this Is a very real example of what thousands of traders go through
everyday in the markets.
I want you to look at the pin bar I’ve marked in the image above.

Imagine for a minute that you have just watched someone place a sell trade based upon
seeing the pin bar above, now also imagine that they have failed to put a stop loss with
the trade.

Look what happens next.

The market surges higher, had the trader put a stop-loss on they would’ve lost a small
amount of money, but since they didn’t, the loss on their trade is now much much
bigger.

Being faced with a very big sudden loss like this causes the trader to be caught in a
psychological trap.
This trap is due to the trader not wanting to accept his loss, he’s so confident in his
ability to predict the market that he feels there no need for a stop, whats the point of
having a stop if he knows where the market is going to go ?

You see traders who have had the market move against them with no stop placed are
optimists. They genuinely believe the market will return to the point where they placed
their trade, giving them the opportunity to close for a small loss or even better, break
even.

Looking at the image above I’ll give you a walk through of what happens in the traders
head when the market moves against him.

After the initial up-thrust where the market moved past their entry into the pin bar
trade, there was a small move down, this makes the trader not using a stop think that
the market is moving lower again, so he waits in anticipation that the market will move
back to the point where he placed his trade.

As you can see this doesn’t happen, the market begins to move higher again, at this
point the trader has withstood so much trauma of being at a large loss that he can not
withstand the pain of having the market move against him again.

This means he will close his trade finally accepting the loss.

None of this would have happened if the trader had put a stop on his trade.

This is why it’s absolutely essential you put a stop-loss on every trade you place.

You do not want to be in the same situation as the trader described above.

How Do I Know All This ?

When I started out in the world of forex trading there were many times when I didn’t
put a stop-loss on my trade, not because i wanted to lose all my money, but because no
one had told me what they do, it sounds stupid but at the time I wasn’t aware books
were available which teach you about trading, if I had know there were, I could have
stopped myself unnecessarily losing money.
Fortunately because this happened at the beginning of my trading career I didn’t really
have much money to lose. I think across the three accounts I had money in, collectively I
lost around £4300, which is still a lot of money but keep in mind this was over a four-
year period.

This is how I know so much about what a trader who trades without stop goes through,
because I use to be that trader !

I’ve had the painful experience of the market going against me and it really isn’t a good
feeling.

This why I have made this article for you. So you don’t go out and repeat the same
mistakes I did !

How To Place A Stop Loss Order

By now you should understand the importance of putting a stop-loss on every trade you
place.

What I’m going to do now is run you through how to actually place the stop itself,
because some people are trading forex using an online broker and some are trading
through MT4 I’ve split this section into two parts:

The first is how to place a stop-loss using MT4.

The second is how to place a stop using traditional online forex brokers.

Placing A Stop Using MT4

Placing a stop on MT4 is a painlessly easy process.

First, you need to right-click on your charts and move your cursor over the option
labelled “Trading”.

A few new options will then pop up, the one we are interested in is labelled “New Order”,
it should be found near the bottom.

A new box will open on your screen.

This screen will now appear, go to the box labelled “Stop Loss” and type in the price at
which you would like your stop-loss to be placed.

After all this is done you simply place the trade and can rest assured that your losses are
limited.

Placing A Stop Using Online Brokers

Most people I know who trade do so through an online trading broker. They use MT4 for
charting purposes, but execute their trades through their trading brokers platform.

All trading brokers are relatively similar in the platforms they provide to users but there
may be slight differences between each one so forgive me if the layout and terminology
used by your broker is a little bit different compared to what I use below.

So how to place a stop using an online broker:

To begin with you will need to click on which type of trade your going to place, when you
have done that a new screen should open, similar to the one in the image below.
Now you need to navigate to where it says “Stop Loss” and type in which price you
would like your stop-loss to be placed.

Upon doing this the only thing left for you to do now is click submit button at the
bottom.

And just like that you now have a stop-loss on your trade.

Moving Stops After Placing A Trade

As well as using stop losses to protect ourselves from losses we can also use them to
protect profits.

And protecting profits is just as important, if not more so, than limiting losses.

This means you can place a trade, watch it go into profit then move the position of your
stop so that you can take some of the profits off your trade.

Say you’ve placed a trade which is in profit of around £200, by moving the stop you can
take £100 profit off of this trade and still continue to have the trade running so it can
still make you more money.

How Do I Do This ?

Its simple really, if you’re using MT4 then you need to navigate to the trade tab found at
the bottom of the window, then right-click on the current trade you’re in.
A small box will pop up, click on the option labelled “Modify or Delete Order”.

This window will then appear.

All you need to do now is change the price of your stop-loss so that its above the price at
which you entered at.
If your trade was placed at 1.12700 and the market is now at 1.13000 to lock in profits
the price of your stop needs to be above 1.12700.

When you’ve done this click “Modify” found at the bottom of the box to apply the
changes to your trade.

What If I’m Using An Online Trading Broker ?

If your trading using an online forex broker then moving a stop is even easier.

By the way not all broker platforms are the same so things may look at little different to
what you see here.

This is a trade I recently placed on USD/JPY.

You can see there are two buttons: one called AMEND and the other labelled CLOSE, to
move the position of the stop you need to click on the AMEND option.
All you do now is simply change the price of the stop level so that its above your entry
price.

Summary

Proper use of stop losses is essential to your success in the markets, by understanding
the many uses they have you can trade more confidently, I thought I’d highlight the
possibilities of what can happen if you fail to use stops altogether and I think we both
agree that not using them would be a big mistake.

The main takeaway I want you to have from this article is that you must always use a
stop loss, no matter how confident you are of a trade working out. Failure to use a stop
will either result in you losing a large chunk of money or all of the money in your
account, by always having one placed, the amount you can lose will always be limited
and you can put yourself in the best possible position to survive longer in the markets.
Understanding How Large Groups Of
Retail Traders Trade
In today’s article, I’m going to be giving you a small lesson in understanding how the
majority of retail traders trade the forex market. The reason I want show you how
they trade, is because in one of my new articles I’ve got coming out in a few weeks, I’m
going to be showing you how to determine the strength of a supply or demand zone.
The problem is in order to actually determine the strength of the zone, you must have
an idea of how many buy or sell orders were coming into the market before the zone
formed. The only way to find this out is to understand how large groups of retail
traders trade, as it’s their orders that will make up the majority of the orders entering
the market before the supply or demand zone forms.

The One Trading Concept Every Trader Uses In Their Trading

Figuring out how large groups of retail traders trade is simple, all we need to do is find
the ‘one thing’ which the largest number of traders will use in their analysis of the
market.

That ‘one thing’ is of course the concept of the trend.

How many times have you been told that you always need to trade in the direction of the
trend ?

The concept of trend is one deeply rooted inside the mind of most forex traders, virtually
all traders will incorporate the concept of trend into their analysis of the market in some
way. For many traders, the trend forms their fundamental outlook of the market, by that
I mean it’s the key thing they’ll look at when deciding whether they should be going long
or going short.

The whole concept of trend is based on the idea that the longer the duration of time the
market spends moving in one direction, the higher the probability it has of continuing to
move in the same direction in the future. For example, if the price of EUR/USD had
been falling for two years the people who follow the trend would believe it has a higher
chance of continuing to fall than if it had only been falling for one year. Because they
believe it has a higher chance of continuing to fall, it means they are more likely to place
sell trades into the market after it’s fallen for two years, than if it had fallen for one,
because of the fact they’re more certain the market is going to continue dropping.
All traders that implement the concept of trend into their trading believe in what I’ve
explained above.

The length of time the market spends moving in one direction is tied to the number of
traders who will be placing trades in the same direction. The longer the market falls the
higher the number of traders selling, the longer it rises the more who are going to be
buying.

Take a look at the EUR/USD downtrend in the image above.

You can see I’ve marked two downswings which took place during this downtrend, one
with a blue box and one with an orange box. I know from looking at this image there
were more people placing sell trades during the swing down marked in blue than there
were during the swing down marked in orange.

The reason why is because of how the long the market had been in a downtrend for by
the time the swing marked in blue took place. Overall when the blue drop occurred, the
market had been falling for 208 days, before the drop marked in orange started the
market had only fallen for 39 days. Because all the traders who believe in the concept of
the trend believe the longer the market has been in a trend the higher the probability the
trend has of continuing, it means more traders will have been placing sell trades when
the swing down marked in blue took place than when the swing marked in orange
occurred, due to the fact they were more certain the market was going to continue falling
by the time the downswing in blue formed.
All Movements Are Trends

Now the next concept I need you to understand (which you might already be familiar
with if you’ve read my Zero Sum Fun book ) is…..“All movements in the market are
trends only not all traders at the same time”

Here’s an image of a swing down which took place on the 1 hour chart of AUD/USD.

Although to most people this simply just looks like a normal swing down, it is in fact a
downtrend, only not to the traders using the 1 hour chart and the time-frames above,
but to the traders operating on the lower time-frames like the 5 minute and 15 minute
charts. To them this swing down is a fully fledged downtrend due to the fact their time
horizons for events in the market are different to the traders on the other time-frames. A
few days worth of price action to a trader on the 1 hour chart is not considered to be a
long time, but a few days to a trader on the 5 minute chart is like an eternity, so even
though the swing down above takes place for the same amount of time on every time-
frame in the market, it’s viewed differently depending on which time-frame you chose to
look at it on.
Here’s the same swing down only now we’re looking at it on the 5 minute chart instead
of the 1 hour chart.

What’s obvious from this image is just how long it looks like the market has been
moving down on the 5 minute chart. Despite the fact the market has been falling for the
same length of time on both images, it looks like it’s been falling for a lot longer on the 5
minute chart because of the amount of candlesticks there are showing the price
movement. I can’t even zoom out enough to fit in both of the blue vertical lines I used to
mark the swing down on the previous image!.

To the traders who use the 5 minute and 1 minute charts this swing down is considered
to be a downtrend, which means the longer the market falls, the higher the number of 5
minute and 1 minute traders there are going to be placing sell trades, plus the higher the
number of traders on the higher time-frames there are going to be placing sell trades,
because if the move down continues it will cause the swing to grow bigger, which will
make the traders on the time-frames above believe that a downtrend is taking place on
their time-frame.

The reason I’ve shown you these images, is so you can see how even movements which
you would never consider to be trends on the time-frame you use for trading, are
actually trends to the traders operating on the time frames below. When you look on
your charts and see retracements and other swings forming, understand that these are
trends to the traders on the time-frames below even if they barely look like trends to you
on your time-frame. Because they are technically trends, it means we can find out how
many people were going long or short when the swing came to an end just by looking at
how long the swing lasted, and then comparing that to the length of the time other
recent swings have lasted.
The swing which took place for the longest length of time, is the one which had the
highest number of traders going long or short at the point where it came to an end,
based on the fact we know the swing is technically a trend to the traders on the lower
time-frames.

Comparing The Swings

What I want to show you now, is how to compare different swings that formed in the
market against one another, to determine which of the swings had the most buy/sell
orders coming into the market at the point where it came to an end.

In the image above you can see I’ve marked a downswing which took place on the daily
chart of AUD/USD with two vertical red lines. Within this daily downswing there were
three upswings that occurred as the bank traders took profits off their sell trades and
caused the market to retrace back into the downswing.

Out of these three up-swings swing 3 and 2 took place for the same length of time (55
hours) and swing 1 took place for 9 hours. Because swings 1 and 2 took place for a longer
amount of time, it means there were more people placing buy trades into the market at
the point where they came to an end than there were placing buy trades at the point
where swing 1 came to an end. Now even though swings 2 and 3 took place for the same
duration of time, swing 2 is actually considered to be stronger than swing 3 due to the
fact it caused a bigger price change to take place in the market.
When you have two swings which occurred for the same length of time, the one which
caused the biggest price change is always classed as being the strongest, because the size
of the price change caused also increases the number of traders who would’ve been
entering long or short trades at the time the swing came to an end.

When determining which supply and demand zones are stronger than others, you’ll
often not only have to compare retracements against one another, but also
consolidations. The great thing is the way we compare consolidations to one another is
the same as the way we compare retracements to each other, i.e we look at the length of
time the consolidation took place and whichever one occurred for the longest is the one
considered to be the strongest.

The main problem is knowing the points where some consolidations begin and end can
be quite difficult.

In the image above you can see I’ve marked two consolidations that formed during a
swing down on EUR/USD. The points where these consolidations begin have been
marked with arrows and the points where they end have been marked with X’s. You can
see how it’s pretty clear where each one of consolidations begins and ends, most
consolidations that form in the market are like this, but there are some where it’s not so
obvious and you have to understand how to determine the point where a consolidation
begins and ends in order to figure out how long it lasted.
Now it’s a bit more difficult to determine where the two consolidations in the image
above begin and end because they don’t begin immediately after the market makes a
new low.

In situations like this, what you need to do is find the source of the first upswing that
took place during the consolidation (if the consolidation formed during a downswing
like the two seen above) and use the candle that made the low of this upswing as the
candle you’re going to use to begin your measurement of how long the consolidation
lasted. I’ve marked this candle with an arrow in the image above. Once you’ve figured
out where the consolidation begins, the next thing to do is find the point where it came
to an end.

The candles I’ve marked with X’s show the points where each consolidation came to an
end. The reason they’ve come to an end here is because they’ve broken and closed
through the low of the first upswing which took place during the consolidation. Once
you know the point where the consolidation started and ended the last task is to find out
which one lasted the longest.

In the image above consolidation 2 was the most important/relevant in the market due
to the fact it lasted for 60 hours whereas consolidation 1 only last for 46 hours. If you
drew a supply zone from each of these consolidations, the zone drawn from
consolidation 2 would be considered to be the stronger of the two zones, as the size of
the sell trades the bank traders got placed to cause the zone to form would have been
bigger due to the length of time the consolidation took place beforehand.

The longer a consolidation is, the higher the number of trades the bank traders have got
placed into the market, which means the stronger the supply zone drawn from the
consolidation is, as the banks won’t want the price to move a large distance past the
point where they’ve got a large number of their trades placed if they want the market to
continue moving in the same direction.

Here’s an example of a consolidation that formed during an upswing.

To find the point where this consolidation started from, you need to look for source of
the first downswing which took place in the consolidation and then find the candle that
made the high of this downswing. I’ve marked this candle with a down arrow in the
image above. Once you’ve found this candle you then to find the candle which closed a
large distance past the high of this first swing down, as this is the candle which caused
the consolidation to come to an end.

After you’ve found where the consolidation started and ended, all you need to do now is
measure how long it lasted and then compare that with any other consolidations that
formed during the upswing.

Summary

I’m sorry if some of the things I’ve talked about in this article have been a little bit
confusing to understand, they’ll become more clear when my “How To Determine The
Strength Of A Supply Or Demand Zone” article is completed in a couple of weeks. The
method I’ve outlined above of measuring consolidations is not something you’ll have to
do regularly, so don’t worry if you didn’t quite get it, because most of the time you’ll be
able to tell which consolidations lasted longer than others just by looking at the chart.
Can You Become Rich Trading Forex? –
Secret Strategy Revealed
Did you know 90 percent of Forex traders fail?

It’s a cold hard truth, but it doesn’t mean you can’t beat the odds and become part of the
five percent.In fact, with the right strategy and emotional fortitude, you can become rich
beyond imagination in no time at all. The problem is, most trading advice promotes
principles that seem alright at face value, but may not fit with your personal situation.

Sure, you can become a millionaire eventually by trend trading the daily charts and only
increasing your lot size after every 500 pip gain. However, given the $400 starting point
of most Forex traders, this would take way too long, result in increased risk, and
eventually cause you to fail rather than succeed.

To avoid this, I’m about to share with you a proven strategy to evade these pitfalls,
methodically grow your account, and become rich trading Forex. Keep reading to learn
how.

How to Earn Seven Figures with Forex

“Can I become rich trading Forex?”

This is one of the most commonly asked questions by those new to the risky yet
profitable currency trading arena.

If you want to make a million on a single trade, think again. Not only is next to
impossible to cash in on a 10,000-pip market move, but doing so would require you to
open a position size of 10 lots and earn $100 for every pip gained.

Given the recommended risk percentage of 1-5%, to achieve this you would need a
starting account balance well over $10,000.

There is, however, a dynamic strategy to employ in order to rapidly compound your
earnings.

Stacking Trades and Scaling In

Unless you’re starting out with five figures, earning a million dollars from a massive
market movement like this is impossible unless you stack trades.

By stacking multiple trades on the same market move, you can compound your earnings
and make more with each one.

For example, let’s say you’re starting out with $1,000. With this, you’re able to open a
trade with a position size of two mini lots and a stop loss of 20 pips while not risking
more than five percent of your account.

As discussed in part one of my Turning a Small Forex Account Into a Big One guide, if
you take the trade right after a shooting star, engulfing bar, pin bar reversal signal,
supply & demand level and your profits begin to build, you can open additional
positions and stack multiple trades on a single price movement.

Not only that, but with each trade being placed at a larger lot size than the last, this
allows you to increase your profits with less and less market movement.

The Method
To do this and take full advantage of market momentum, open your first trade at the
normal lot size you trade with given your particular account balance.

How do I spot a market momentum in the first place & how does it looks
like?

Simple.

You will see big candles moving in the same direction with minimal retrace

Example 1:
Where to look for momentum before it happens?

You can’t be 100% sure when a momentum will occur but it usually happens on key
levels.

In the Eur/Usd example 1 above price rise from a weekly demand.

Weekly demand from 2003

Reaction of weekly demand from 2003

The entries

You can’t just enter because price is at key level. That’s a recipe to disaster. Instead, let
the price show you the way & give a good sign.

What is a good sign?

A good sign is a big retracement and the retest of it.

Entry Method 1: Supply & Demand Levels

Let’s take a look on our Eur/Usd example above:

That could be your 1st entry utilizing supply & demand method with pending orders.

Additional entries on the daily chart:

As you can see, you could add 6 more positions without losing a single one*, 7 positions
in total.

*You could possible lose position #5 but depending on your money management,that
could be a break even entry if you take 50% of your position at 1:1 RR for example or if
you move stop loss at break even after price has advanced x amounts of pips.

Entry Method 2: Engulfing candles in combination with Supply & Demand

levels.

Let’s see how many additional entries we can get with engulfing candles using the same
example as above.
Here you have 4 more additional entries by entering on daily engulfing candles. Again,
without a single loss even if you put the stop loss below the daily low candle.

Entry Method 3: Shooting stars + Pinbars

Even though by text book definition Shooting stars and Pinbars are different, to me they
are the same thing.

Let’s see how many additional entries we can get by using them.
Here you have 3 more entries without a loss.

Just by using the 3 entries methods above, you could get 14 positions without a single
loss!

How to manage your positions

As your profits begin to build, take some of your profits from this trade to open another
position in the same direction. Only this time, increase your leverage.

Now, you’re profiting from two trades rather than one and the second trade will make
you more money in less time.

At this point, you can take the profits from the first two trades, increase your leverage,
and open a third position in the same direction.

How to add even more positions

As an example, you could open a position on a pin bar or shooting star on the daily
chart, and then open more positions using the 4-hour chart to identify additional pin
bars and optimal buying or selling opportunities.
Here are some additional entries on the same example we used above, Eur/Usd.

For instance, let’s say you open a EUR/USD buy position on the emergence of a pin bar
on the daily chart. You then switch to the 4-hour chart and open a second position in the
same direction when you identify another pin bar, and the distance between the two
points is 400 pips.

Trading a single mini lot, in which each pip is $1, you will have earned $400.

When you see a new pin bar forming on the 4-hour chart, you can then move the stop
loss on the first trade and lock in $200 in profits. Regardless of what happens, you will
secure $200.

You can then use that $200 in guaranteed profits to open a second position at a larger
lot size when the next pin bar forms.

To calculate the size of your subsequent positions, divide your profits by the distance
between the stop of the first trade and the entry point of your second. In keeping with
our example and assuming the distance was 60 pips, you would place your second trade
at approximately three mini lots.

Remember, you’re first trade is still running as well.

When another pin bar forms to provide another buying opportunity, once again use the
total profit from the first trade, not the second, to up the leverage yet again and open a
third trade.

To determine the lot size, simply divide the total profits of the first trade by 50%. So, if
you’re in profit $1,100 on the first trade, the maximum you will want to place on this
final trade is $550.

When you factor in the stop loss distance of the last pin, you may be able to open your
last trade at twice as much as the second, which in our case would be six mini lots!

Plus, the first two trades are still running and making you money as well!

With the third trade, your profit could top $1,500 in only a week, so at this point you
may want to consider taking your profits from trades two and three, which may net you
upwards of $5,000 or more.
I recommend closing the last two trades and keeping the first trade running to see if any
new pin bars appear and if you’re able to take advantage of even more buying and
scaling opportunities. If one does occur and there is no sign of a long-term trend
reversal in sight, you could once again use the profits from the first trade to repeat the
scaling process.

While I used the daily and 4-hour timeframes for our example, you can use this strategy
on any timeframes you want. If you’re a day trader and really want to snowball your
earnings to reach $1 million in no time at all, you can easily spot trending movement on
the 5- or 15-minute charts and scale exactly like we did above.

The Freedom of Multiple Positions

Taking multiple positions in the market gives you ultimate freedom and flexibility to test
and tweak your trading methods.

For instance, rather than having two or three trades open with lower and higher
amounts of leverage, you can have several smaller trades open on strong trend
movements. You can even have multiple trades open at the same time on different
currencies.

Not only will this allow you to better mitigate your risks, but you’ll still earn equivalent
profits.

Trading this way will also make you a sharper trader. Most traders open a trade and wait
to close it before placing another. Most never think to open more trades.

When you find yourself in a winning trade, you should be placing additional trades in
the same direction. That’s the key to becoming rich in Forex. It’s all about momentum.

Bottom Line
Can you become rich with Forex?

Absolutely.

Although trend movements like the example above are rare and growing a small account
into a large one with five, six, or seven zeros is no easy task, it can be done.
My goal with this post was to give people just like you a genuine, real method for rapidly
growing small accounts into large ones. While some people may not agree with these
trading strategies, they work.

If you keep following the same old trading advice, you won’t be able to advance in your
trading career. The stats speak for themselves. According to Oanda, 60% of their clients
lose money, and many think this number is far too low.

This is proof that traditional trading advice consistently delivers poor results. If they
didn’t, much more people would be making much more money.

Thanks for stopping by.

Be bold and conquer young trader.

Why Do 90% Of Traders Consistently
Lose Money ?
Time and time again you’ll hear people say 90% of traders consistently lose money
trading the forex markets.

I don’t know where these figures come nor do I know how true they actually are but I
feel like some light should be shed as to why so many traders apparently lose money, its
important to note this figure is not just exclusive to the forex market….

Stocks – commodities – bonds, 90% of the traders trading these markets are also said to
be consistently losing money.

With so many traders losing money across all types of financial markets it begs the
question “What are all these people doing wrong” ?

This is the question I hope to answer today, we’ll start by taking a look at some of the
things which are commonly blamed for 90% of traders losing money and try to decipher
whether they are the actual reason for so many traders consistently losing or if there is
something else which people are doing wrong ?

Is It Because Of Strategy ?

We’ll begin by analyzing one of things which is usually blamed for traders not being able
to make money from the markets.

Trading strategies are said by many to be the prime reason so many traders fail to make
consistent money trading forex.

Not only this but traders themselves will say the reason they’re not making money is
because of their trading strategy.

Personally I don’t think trading strategies are the reason why such a high percentage of
traders consistently lose money.
For the most part every trader is using a different trading strategy, there may be a large
number of methods which all fall under the same category, i.e price action/indicators
but each trader is implementing their own small tweaks to these systems in order to suit
their own needs.

Therefore it doesn’t make sense to me that trading strategies can be the cause of 90% of
traders losing money, there are literally thousands of trading strategies out there, how
can it be that thousands of traders using differing strategies are all consistently losing
money ?

If the strategy was the reason behind why traders are losing money then it must be the
trader who’s at fault, the strategy can’t trade itself, it requires human input in order to
function correctly, if the trader is not using the method in the right way then the strategy
can’t be blamed as the trader themselves is the problem, which brings me on to my next
point…….

What About Psychology ?

Trading psychology is another thing which many attribute to so many traders not
making consistent profits.

The psychology of trading i.e closing trades too soon – revenge trading – holding onto
losing trades, is something which does affect many traders although I still believe the
number of traders who have these problems isn’t big enough for someone to come along
say that it’s the main reason why 90% are consistently losing.

I think alot of people suffer from mindset related mistakes such as closing trades too
soon – not taking trades that meet your trading plan etc but these are not critical
mistakes which are going to lose you large amounts of money, it’s the big mistakes like
holding onto losing trades which have the capability to make you lose large sums and
most traders who have been trading for a year or two do not make these kinds of
mistakes.
 Incorrect Money Management

Money management e.g trading with a consistent risk size, is something which alot of
traders implement incorrectly does this mean that it the main cause of 90% consistently
losing ?

I don’t believe so.

If the majority of traders lose due to incorrect money management then that would
mean they are blowing their entire account, and its likely they wouldn’t be trading at all.
In order for 90% of traders to be consistently losing they must be active in trading the
markets, if they don’t have an account they wont be trading, therefore they can’t be
consistently losing.

The basic definition of money management is deciding how much you’re going to risk on
each trade, correct money management is where you always trade with a consistent risk
size, and the leverage you use on each trade is also consistent with the money you have
available in your trading account.

Incorrect money management would be changing the size of the leverage on each trade
or, taking trades in which you have to risk more than 1% of your total account balance.
In some cases these can be disastrous mistakes, placing a trade at 100 – 1 leverage when
you only have £1000 in your trading account can and will probably lose you all of your
money, these are mistakes which only new traders typically make, if you’ve been trading
for longer than 6 months then its unlikely your making these kind of errors as you would
have learned enough about the market to realize its dangerous to do these things.

The Reality Of Why Traders Lose

So far we covered the 4 things which are usually blamed for 90% of traders consistently
losing money, while it can be said a large percentage of traders lose because of reasons
outlined above it, they are all fixable problems, if your trading strategy isn’t working,
change it, if your money management is wrong fix it. Trading psychology is the only
issue which may or may not be easily fixable.
I think there has to be something every trader is doing wrong, it may not be intentional
and the trader may not realize he is actually doing something wrong but overall there
has to be a mistake all traders are making regardless of strategy/money
management/psychology.

The 4 Rules

Forex trading is like a game, and just like in any other game you may have played there
are rules you must learn in order to play the game properly.

These rules affect every player in the game, in forex it means all traders must follow
these rules whether they are aware of their existence or not, to not know what the rules
are means putting yourself at a severe disadvantage compared to the other players who
know the rules and their implications on the market environment.

The huge problem with forex is you have to figure out these rules yourself, there isn’t
any books you can read to teach yourself the rules of the market. They can only be
discovered by thinking about the inner mechanics of how the market itself works, once
you know the rules of the forex market, you can learn the truth on how to trade the
markets profitably.

Here are the four rules of the forex market:

1. The forex market is a zero sum game where one persons losses equate to another
persons gain.
2. Nobody can place a trade unless another person is placing the exact opposite trade
3. The bigger the trade you want to place the higher the amount of people needed
placing the opposite trade.
4. The market cannot continue in one direction without pulling back or consolidating

These are the rules of the market.

All four of the rules outline above are FACT they cannot be disagreed with.

Every trader in the market follows the 4 rules outlined above even if their not
necessarily aware of the rules themselves.

I think if every-trader was given these rules at the beginning of their trading education
far more people would be profitable, even rule 1. has massive implications for the
traders knowledge of the market.
If the trader understands the market is a zero sum game then he will know the majority
of his learning should focus on understanding when and where other traders are going
to lose money, as this is the only way for him to make money.

The Trend

Whilst the 4 rules play their part in traders not making money there is another thing
that traders get wrong which if they got right could be the difference between success
and failure.

The trend is a concept that is bludgeoned into every trader from the beginning of their
career trading the markets.

In every trading book and course you can buy there will be a section dedicated to telling
you how the trend is most important concept in the market and failure to follow the
trend means you are unlikely to make any money trading.

What I find strange about trading books is even though different books will teach you
different strategies the concept of trend always remains the same ?

All the books give you the same advice….

1. Always follows the trend

2. The longer the trend has been in place the more likely it is to continue
3. Don’t try to predict the beginning or end of a trend

These three pieces of advice can be found in 95% of the trading books out there, these
are the same books that most traders are likely to have read during their time trading.
Now if majority of traders have read these books and followed the three rules regarding
trend, could it be possible the reason most traders are losing is due to the definition of
trend being wrong ?

The reason I say this is all trading strategies incorporate the idea of trend in some way,
nearly all trading strategies fall into two groups, trend orientated and reversal
orientated.

Trend strategies aim to get into the market AFTER it has already moved

Reversal methods try to get into the market BEFORE it has moved
Both sets of strategy are dependent on the concept of trend, if there was no trend, these
methods wouldn’t work and people would have to switch to trading methods which do
not incorporate the concept of trend.

So if for instance the common definition of trend was wrong, It would mean the reason
all trend traders and reversal traders are losing money is because their understanding of
trends is incorrect, or their implementation of trends in their trading strategy is wrong.

I think the wrong definition of trend is a far more probable candidate for being the sole
reason why 90% of traders are consistently losing than the strategy/money
management/psychology problems we discussed earlier.

Think about this……

90% trading strategies rely on trend….

90% of traders are consistently losing money……

Why do you think 90% consistently lose ?

Summary

90% of traders lose money not because of the strategy they use or the mental challenges
trading brings, they lose due to their lack of knowledge on how the forex market really
works. If a new trader learned the 4 rules of the market before he began learning
anything else within a short space of time he would be consistently profitable, it took me
yeas to figure out these rules and even longer to understand the implications they had
on the way people participate in the market.

A trader who is new to the forex market wouldn’t have this problem as all of the learning
he’d be undertaking would be based off the four rules of the market, he wouldn’t be
reading books on technical analysis to understand how he should trade, he would be
reading them to understand how other traders trade because he knows his profits are
ultimately going to come from other traders.
It’s the lack of knowledge of the way the market works coupled with the wrong
definition of trends that makes people lose money, not the strategy/psychology/ money
management problems than only a minority of traders have.