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yacksyfx

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257 posts in this topic

Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’ (1)


Step 7: Making the jump to live trading – Preparing yourself for the emotions

When you are demo trading the markets you naturally have no emotional problems to battle with, because you have no real money on the line. Thus, many traders do exceptionally well when demo trading only to find that their fake-money success goes out the window when they switch to real-money trading. That’s because there are drastic psychological differences between demo trading and live trading that you need to come to grips with prior to switching to a live account. Here are some points to consider before you begin risking your hard-earned money in the markets:

• How to trade like you did on demo – As I mentioned previously, traders usually do better on demo than they do on live accounts as a result of the fact that there is naturally no emotion in the mix when you aren’t risking real money. While it is certainly easier said than done, what you need to do on your live account is forget about the real money you are risking, here’s how you do this…

• ONLY trade money you are OK with losing – In order to not get emotional while trading with real money you need to never trade with money that you need for anything else in your life, as well as never risk more than you are truly OK with losing. If you can manage to consistently do these two things, you will experience little to no emotion on any one trade. Most traders end up trading with money they really shouldn’t be trading with, or they risk more than they are OK with losing per trade, thus they become emotional.


Source : LEARN TO TRADE

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Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’ (2)


• Understand you CAN lose on ANY trade – You are much more likely to have a calm and objective trading mindset if you always remember that you can lose on ANY trade you take. Even if you see what you think is a “perfect” price action strategy  in a very strong trending market, it can still fail. The truth is that you can never know for sure what is going to happen on any given day in the market, so if you truly accept that and believe it, there is no reason to ever risk more than you are comfortable with losing.

• Don’t get caught-up over-analyzing the markets – If you want to become a professional Forex trader you are going to have to learn how to accurately read and trade off of the daily charts first. Most traders end up taking the opposite approach; they start by trying to trade off of lower time frames like 5 minute or 15 minute charts, and then after they lose enough money they eventually figure out the daily chart is a lot more conducive to trading from a relaxed and objective mindset.

• Not every trading opportunity is created equal – Understand that you shouldn’t stray from your trading edge once you start trading live. You probably traded your edge very consistently on demo, because you didn’t feel any “urge” to make money, try to recapture that same feeling when trading live and forget about the money. Over-trading is a result of feeling “pressure” and greed to trade. The more you feel these emotions the more likely you are to trade when you shouldn’t and thus lose money.


Source : LEARN TO TRADE

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Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’ (3)


Ultimately, there is a fundamental difference in how amateur traders think vs. how professional traders think. The difference lies mainly in the amateur’s “need” to make money from their trading as well as their inability to trade emotionally undetached from any one trade. Essentially, professional traders do not become emotional from any one trade because they know their success is defined over a large sample of trades, not by one or two. Professional traders also know that the key to keeping the emotional trading demons at bay is to consistently control their risk in the market. Your trading psychology is what dictates how you interact with the market, and this psychology is almost entirely a result of how well you manage your money as you trade.

Step 8: Managing risk effectively – The KEY to successful Forex trading

riskAs I just mentioned, risk management is the “key” to managing your emotions correctly; and thus it is also the key to becoming a successful trader and eventually a professional trader. If you practice proper risk management on every trade, it will make managing your emotions and maintaining the proper trading psychology a very simple task.

However, most traders do not manage their risk effectively, and as a result they experience huge emotional swings in their trading, as we all as in their equity curves. To avoid the account-destroying emotional trading mistakes that most traders make, there are some specific forex money management guidelines that you can follow:


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Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’ (4)


• Trade with only disposable income – I mentioned this in the previous section, but it’s worth mentioning again because it really is your first line of defense against becoming an emotional trader. If most traders would only take the time to honestly decide how much truly disposable income they have to trade with and ONLY trade with THAT money, there would be a lot more successful traders in the world.

• Understand risk / reward and position sizing – It really is amazing how many traders start risking their hard-earned money in the markets without a thorough understanding of risk reward and position sizing. If you take the time to understand the math behind the power of risk to reward ratios, it will allow you to see that you can actually lose on the majority of your trades and still make money, to learn how this is possible see this article: Case Study – Random Entry & Risk Reward in Forex Trading

Position sizing is equally important, yet many traders seem to have no idea that they can still trade a their ideal risk amount even if they need to place a large stop loss on a trade. I get questions about this everyday; “Nial how can I trade the daily charts with a small account, am I not better off trading the smaller time frames?” The answer is you simply need to reduce your position size down to meet the larger stop requirement of daily chart time frames compared to smaller time frames. There are no advantages to trading 5 minute charts on a small trading account or on any account really.


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Part 3 – How to Become a Pro Trader: Taking Off the ‘Training Wheels’ (5)


• Know what your risk-per-trade tolerance is and STICK TO IT – Professional traders know before they enter a trade how much they are going to risk on it and how much they are emotionally OK with risking on it. If you are staying up all night watching your trades, you are risking too much. You should risk an amount that truly allows you to set and forget about each trade you take, because being preoccupied with every trade you take all the time is a sure sign you are risking too much.

• Avoid taking on more risk from adding positions – Some traders like to trade multiple markets at the same time, and they will actually double or triple their normal risk while doing so. This is basically trading account suicide. First off, if you are a shorter-term swing trader like me, you are only in the markets for 1 to 3 days on average, sometimes a bit longer depending on the trade. But, there’s really no reason to be in 5 different trades at the same time unless it’s part of a long-term diversified investment strategy. If you do see a good reason to trade multiple Forex pairs at the same time, make sure you divide up your risk amongst them so that your pre-defined risk tolerance is always maintained.

• Measure risk and reward in dollars, not pips or percentages – If you are still calculating your risk and reward by percentages or pips, you need to stop. Think about it for a minute; if you risk 100 pips on a trade that doesn’t really mean anything because you can trade many different position sizes for that amount of pips. One trader might have $10 at risk on 100 pips and another trader might have $1,000 at risk on 100 pips. Thus, through position sizing, a trader can risk different dollar amounts than another for the same stop distance. So, the point is that you calculate your risk and your reward in terms of “R”, R is the dollar amount you risk per trade. Check out this article later on how to measure your trades in dollars not pips or percentages to learn more.


Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (1)


Putting It All Together

Missing PieceIn Part 3 of this mini-series we discussed how to “take off the training wheels” of demo-trading and progress on to trading with a real-money account. If you missed Part 3 click here.

Here’s a quick review of the main points we covered last week:

Step 7: How to handle the emotions of trading with real money

Step 8: Successful Forex trading money management

We are going to wrap up this 4-part blog mini-series in today’s lesson by discussing how to “put it all together”. I am going to walk you guys through an example of how a professional trader operates in the market by taking you through a trade step by step. Hopefully, in today’s lesson you will understand how all the steps in this series work together to provide you with an effective trading approach. Now, let’s check out how a pro price action trader would progress through a trade:

Step 9: Finding a price action signal

If you’ve completed all the previous steps in this mini-series, you will be ready to take the next step which is to actually look for a price action signal to trade on your real-money account. This is where your Forex trading plan comes in; it will give you a checklist to guide you through the process of finding a valid price action signal. It is not a concrete rule-set, but rather a guide or an outline that you follow to make sure any potential setup that you find meets certain criteria. Here’s an example:


Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (2)


• What time frame am I looking at? The daily chart time frame is best.

• What market am I trading? Is it a major Forex pair or a more volatile exotic pair?

• What condition is the market in? Trending, consolidating?

• Where are the obvious key support / resistance levels in the market? Have I drawn them in?

• What are the 8 and 21 daily EMAs doing? Where is price in relation to them?

• Is there an obvious price action signal on the chart?

• If there is an obvious signal, does it have confluence?

• What confluence does it have? Trend, static support / resistance, dynamic support / resistance, 50% retrace level? Event area? The more the better…

• Is the signal showing rejection of a key market level?

• Is the signal showing a false-break of a key market level?

These are just some of the things you would want to look for as you analyze the market and try to find a high-probability price action setup; it’s not a ‘complete’ trading plan or checklist. A professional Forex trader will have gone through the process of making sure any potential trade setup meets his or her checklist so many times that it turns into a habit and gets ingrained into their mind. Trading success is all about developing and maintaining the proper trading habits.


Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (3)


Here’s an example chart of the Kiwi/Yen pair, we can see this was a pin bar trading strategy that formed at a key level in the market and with the dominant daily trend. This was a very obvious price action setup that any professional trader trading this market would have caught. Note that it provided a very nice profit as the trend took off after the pin bar broke out to the upside:

capture-20170522-212153.png

Step 10: Calculating the risk to reward ratio of the trade

After a professional Forex trader finds a valid signal to trade, the next thing they will do is concentrate on the risk. That’s right; the RISK is the first thing a pro trader concentrates on…not the reward, like most amateurs.


Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (4)


Depending on the particular setup you are trading and were the nearby key support or resistance levels are, a pro trader will place their stop loss at the most logical place that gives the trade room to breathe. Logical stop placement is a crucial difference between winning and losing Forex traders. Winning traders will take the time to focus on finding the “safest” place to put their stop, while beginners usually place too tight of a stop just because they want to trade a bigger position size…or they place no stop at all, which is just insane.

Professional Forex traders calculate their risk reward ratio in terms of dollars at risk. So, if you have 100 dollars at risk, 1R (1 times risk) for you is $100, 2R is $200, and so on. Most pro traders are not very concerned with percentages or pips, because at the end of the year all that matters is how much money you lost relative to how much money you won. That’s why I measure my risk and reward in dollars, not percentages or pips.

In the chart below, we see the same NZDUSD pin bar trade, but this time we are calculating the potential risk reward on the trade. This trade actually ended up moving about 5R higher, meaning it would have returned 5 times what you risked if you had your stop loss just below the low of the pin and you entered at the high; a very good risk reward ratio indeed.

capture-20170522-222613.png

Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (5)


Step 11: Managing the trade after it’s live

Managing trades after they are live is perhaps the part of trading that gives traders the most trouble. The reason why traders have difficulty managing their trades is primarily because they over-complicate the process. I am a strong believer in “set and forget Forex trading”, and indeed this is a core part of my overall trading philosophy. Meddling in your trades after they are live and second-guessing your trade setups are things amateur traders do. Professional traders only take trades they are 100% OK in risking their hard-earned money on, thus they don’t second-guess themselves usually, and they rarely meddle in their trades. If you have a Forex trading plan and actually follow it, there should be no reason to mess around with your trades a lot after they are live. I personally have found that just letting the market run its course is usually the most lucrative forex trade management technique out there.

In the NZDUSD pin bar trade below, we can see this market easily presented us with more than a 2 times risk reward. I personally almost always take a reward of two times my risk, as more often than not, the market is ready to retrace substantially after pushing in one direction long enough to net me 2 times my risk. However, in strong trending markets like in our example trade below, there is usually a good probability you can get a reward of more than 2 times your risk. Indeed, in the example below this NZDUSD trade provided a 5 times risk reward.

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Part 4 – Become a Professional Trader: Putting It All Together (5)

capture-20170524-005530.png

I get a lot of emails about exits and how to manage them. The simple truth is that I almost always set and forget my trades; it’s a rare occasion that I meddle in my trade by closing it out before it hits my stop or by moving my profit target further away. I like to either take the loss or take the profit. Over a longer period of time, this trade management technique will work out in your favor, because you are not acting emotionally. Most traders who meddle in their trades are trying to “control” the market or force their will upon it.

You are far better off just entering your high-probability price action setup and letting the market “do its thing”. You will get better at this and at taking profits from your Forex trades, but it’s not something that will magically happen overnight. It takes a solid understanding of price action and market dynamics as well as putting in the screen time to develop your discretionary price action trading skills. All of this adds up to obtaining a keen “sense” of how to read and trade the raw price action in the market, and this is an art and a skill which will reward you many times over.


Source : LEARN TO TRADE

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Part 4 – Become a Professional Trader: Putting It All Together (6)

Step 12: Controlling yourself after a trade

Finally, we come to the last step of this mini-series on becoming a professional trader, and it is perhaps the most important one:

I know that most of you have had some good trades and made some money in the markets. But, what did you do after your trade? The honest answer to that question is truly what defines a professional trader. Your mindset right after a trade is at its most fragile, because you are likely either feeling a bit euphoric over your winnings or angry and frustrated over your losses. Granted, you should not experience these emotions too intensely if you’ve manage your risk properly, but you will likely still feel them to some degree no matter what, after all, you are risking your hard-earned money.

Whether you win or lose on a trade, you are at the greatest risk to make an emotional trading decision immediately after a trade closes. While there is no miracle-formula for making sure you avoid these emotional trading errors, if you understand and accept the following points you will be far less likely to make them:


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Part 4 – Become a Professional Trader: Putting It All Together (7)

• If you have just lost on a trade, remember that jumping in the market again to try and “make back” what you lost is an emotional reason for trading, not a logical one. Do not enter another trade right away unless there is a valid price action trade setup that meets the criteria in your trading plan.

• If you have just won on a trade, remember that you are not some “perfect” trader who can do no wrong in the markets. Beginning traders tend to get over-confident after a winner or a string of winners, this can cause them to veer of course and “run and gun” rather than trading Forex like a sniper.

• Remember, your trading success is not defined by your last trade; rather it is defined by the result of a large series of your trades. To become emotional and react defensively to any one trade is to say that you think your success as a trader hinges on one trade, and it simply does not. You have to learn to take your losses as just a part of doing business in the Forex market.

• In regards to taking losses, it will be a lot easier to swallow the inevitable losses if you are only risking an amount per trade that you are truly OK with losing. When you start trading with money that you need for other life expenses, or risking too much per trade, you put yourself at a very great risk for wanting to enter a “revenge” trade after you lose.

• Perhaps the best way to control yourself after any one trade is to simply take some time away from trading. Rarely are you going to exit a trade and then get another high-probability opportunity immediately after that. It usually pays to separate yourself from your charts for at least 24 hours after you exit a trade, whether it was a winner or loser. This will give your emotions time to die down and cool off before you begin analyzing the charts gain.


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Part 4 – Become a Professional Trader: Putting It All Together (8)

Where to go from here…

futureNow that you’ve finished this mini-series on becoming a professional trader, you should have learned a lot and have a deeper understanding of what pro trading is all about. I am not implying that you will be a professional trader just because you read this blog series. You need to understand that becoming a pro trader is the result of months and likely years of disciplined trading and making small steps toward your ultimate goal of professional Forex trading.

The first thing you should aim to do now is to follow all the insight in this series and aim for making small yet consistent gains each month on your trading account. If you are making money each month while managing your risk effectively on every trade and trading like a sniper…YOU ARE A SUCCESSFUL TRADER. You don’t need to be a professional / full-time trader right out of the gate to be a winner. Rather, this should be a longer-term goal that will sort of just “happen” if you trade consistently and remain disciplined over a long enough period of time.

Every trader is different, and so every trader will take a different amount of time to become successful. But, I promise you that if you learn and master a high-probability trading strategy like price action, and combine that mastery with a realistic attitude and a disciplined trading approach, you will be well on your way to becoming a profitable trader. 


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Clean Up Your Forex Trading With Price Action (1)

The Forex market has its own language. This language takes the form of price movement. In order to understand and “speak” the language of the market you must learn how to read the price action that occurs on a clean, indicator-free, price chart.

Everything that happens in a market is ultimately reflected via price on a price chart. So, when you learn to interpret and trade price action, you are simultaneously interpreting and making sense out of all the global economic variables that can affect a market. Where many traders go wrong is in assuming that they will be able to read the market more effectively by trying to interpret news, indicators and (or) trading software. This is analogous to believing that you will have an easier time driving down the road on a dark foggy night than you will on a clear sunny day. Allow me to explain…

• Forget About Forex Trading Robots and Trading Software

One of the main problems with all the Forex trading “robots” and other trading software on the internet today is that they do not possess the human traits that can literally make or break you in the market. Robots and trading software are futile because they cannot develop a savvy trading sense and an “eye” for the market. Identifying Forex market bias and picking your trades wisely is a key component to what makes a trader successful over the long-term. Our current level of technology simply cannot produce a trading robot that has the ability that a human being can obtain to analyze and trade the market.

Furthermore, the claim of trading software designers that their products eliminate the problem of human emotion and discipline is entirely false. There is still a human behind any trading program, that human still must be disciplined enough to not over-ride the program or “meddle” with it. If you can’t follow a Forex trading plan that you design, you won’t be able to follow a piece of trading software either. So, it appears as though the main variable in trading success is the particular human doing the trading, not having the “best” and fanciest sounding trading system.

In the question of which is better; the human mind or computers in Forex trading? , the clear winner is the human mind, however, it must be developed and trained properly first. So much of trading success is a result of personal development; you are very unlikely to see some out-of-control unorganized slob become a consistently profitable trader. Very often people who have a knack for discipline and organization are good traders.


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Clean Up Your Forex Trading With Price Action (2)

• Ditch The Indicators and The Mess

MessyDesk28Indicators are derivations of price action, so why not just learn to read the price action? Why would you purposely make trading harder than it already is? By putting messy indicators all over their charts that’s exactly what many traders do; they are simply making the natural price action clues harder to interpret. Indicators give no advantage, and in fact they actually just confuse and frustrate you by making the “real” picture of the market harder to decipher. Each indicator that you put on your chart basically just separates you further from the real story of the market.

You don’t want to purposely create a mess all over you charts by over-laying a bunch of indicators that are simply telling you what the raw price action is telling you but in a more confusing format. Just like having a clean work-space is important to success in any field, having a clean chart (and a clean office) is critical to Forex trading success. (Don’t end up like this guy…..)

Traders have a tendency to get excited about new indicators; they think that an indicator will somehow show them the market from a more advantageous perspective or that it will somehow give them “perfect” entry and exit strategies that will take the guess-work out of trading. I am here to tell you that successful trading is about developing your ability to analyze price, maintain discipline, and generally just control yourself in the market. Nothing else. Don’t let fancy sounding and looking indicator-based systems fool you. I was fooled by them early-on in my career, they did not help me achieve success in the markets, learning to read price action did. Trading with indicators will destroy Forex trading success.


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Clean Up Your Forex Trading With Price Action (3)

• News Trading Is Unnecessary

newsThere is nothing inherently wrong with getting yourself up to speed on current Forex market news and other global economic events. However, many traders take it too far and end up trying to trade off THEIR interpretation of what MIGHT happen based on some news event that has either just happened or is about to be released.

The problem with this line of thinking is that price movement is fueled largely on human emotion or feeling about what is most likely to happen, not necessarily on logic. In other words, traders trade their beliefs about a market, and when an economic news release is pending, traders tend to trade based on their expectations of how the news will affect the market. So, once the news ACTUALLY comes out, the expectations have changed, and traders now have nothing to “bet on” in the near term. This is why price will often move the opposite direction from what is implied by a particular economic news release.

Good news! The good news is that price action strategies form as a result of people trading their expectations and beliefs about a market. So, by simply learning to trade these price action strategies we can forget about over-analyzing and interpreting the vast amount of news events that occur each day in the market. Think of price action as the final result of a catalyst that causes a market to move. Whatever the catalyst (news event) is, it will eventually be filtered through either a human brain or a computer trading program, and both of these will make their mark on a plain-vanilla price chart. By learning to read these “marks”, we are getting the most accurate and relevant “picture” of the aggregate belief structure of all market participants. Meaning, learning to trade based off simple price action trading setups is the most efficient, effective, and easiest way to trade.


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