Hi Justin, would appreciate your thoughts on how a trader can make up or prevent losses apart from using a stop loss. Often a trader may be unclear about the direction of a trade even though they may have a bias. How do we handle this as traders? Most losses in the Forex market are the result of flawed preparation. And in every case, the loss can be prevented by doing nothing. But most of the losses you take each month can, in fact, be prevented. By doing this, you will improve your bottom line and be one step closer to enjoying consistent profits.
By doing this, you will effectively increase your end of month profit. After all, profit is nothing more than revenue minus expenses. Or in our case, winning trades minus losing trades. The longer you can stay in the game, the greater chance you have of becoming successful. And one of the best ways to do that is to reduce losses. For the Forex trader, any loss is a business expense.
So if you want to make more money, you either need to have more winning trades or reduce your losing ones. One thing I tell my members quite often is that it only takes one good setup each month to make a considerable amount of money. It may even sound ridiculous, especially if you come from something like the 5-minute chart.
If you can reduce your losing trades, a 3R win or more will have a much greater impact on your bottom line. And trading less frequently is, in my opinion, the best way to make your winning trades more valuable. This one goes hand in hand with trading less. If you stick to the daily time frame, you will be forced to trade less frequently as there are fewer quality opportunities.
The daily chart gives you the necessary time to analyze the market, develop a plan and execute it without feeling rushed. This is also why the major currency pairs tend to perform better than some others. Imagine this scenario for a moment.
Each candle on your chart represents a separate market filled with buyers and sellers all fighting for a desired price point. Now, which candle, or market, has the greater liquidity — a 5-minute candle or a daily candle? The answer is clear. A daily candle has far more activity throughout the day and thus tends to perform better when it comes to technical analysis.
The trend is your friend, right? And once you learn how to pyramid into a winning idea , the opportunities for big wins are endless. The daily time frame is far better at producing sustainable trends than any lower time frame. A global market like currencies has no shortage of market-moving events. Some are scheduled occurrences while others, such as natural disasters, are spontaneous.
By sticking to a higher time frame such as the daily, you can avoid much of the day-to-day volatility. In a way, it acts as a natural filter. All of a sudden, a Fed member gives an impromptu speech causing the US dollar to plummet. If you had been trading from the daily time frame, your stop loss would likely be at least 50 pips away from your entry. Your risk remains the same, but your ability to withstand spikes in volatility has increased significantly.
Bill Lipschutz is a Forex trading legend, no question about it. As a technical trader, I rely on key levels to make my decisions. I never try to figure out what the Fed might do or formulate a trade idea based on non-farm payroll or any other market-moving event. I take care to consider these things and incorporate them into my technical approach. For example, I trade pin bars and engulfing candles as well as patterns such as the head and shoulders and bull and bear flags, just to name a few.
Each one is considered a separate strategy. My criteria for a pin bar is, of course, different from that of an engulfing candle. Similarly, the head and shoulders pattern is vastly different from a bull or bear flag.
One is a reversal pattern while the other signals a continuation of the prevailing trend. If you want to find success in this business, you need to master one strategy at a time. Trying to do too much too soon will not only slow the learning process, but it could also lead to some disastrous outcomes, such as blowing a trading account. Only then should you look to add more tools to your trading arsenal. Like all of the posts on this site, this one is packed with information from top to bottom.
It can be all too easy to finish reading it and suddenly feel overwhelmed. Too many traders overcomplicate things. They spend their time testing expert advisors or creating indicators when the real truths about why a market moves the way it does are right in front of them. As soon as I went back to the basics and learned what the price was telling me, everything started falling into place.
I ditched the indicators and forgot everything I thought I knew about what it is to be a trader. The length of the post got away from me, but I love writing about these topics because many of them are such a contrast to popular belief. I shared the following with my members recently, and I want to share it with you now. I think we can all agree on the points above, especially the last one. This leads us to one very eye-opening and somewhat obvious conclusion.
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