Category: 4. Blogs

USDJPY Price Analysis – July 14

In case bulls increase their pressure, USDJPY may increase towards the resistance level of $111 and if the daily candle close above it, it will increase the price to $113 resistance level. Should the bulls’ pressure fails at resistance level of $110, price may reverse and the bearish movement may continue towards the support level at $109, $108 and $107.

USDJPY Market

Key levels:

Resistance levels: 110, $111, $113

Support levels: $109, $108, $107

USDJPY Long-term Trend: Bullish

USDJPY is bullish on the long-term outlook. Two weeks ago, the currency pair was under the control of bears. USDJPY tested the resistance level of $111 on July 01 and reversed after the formation of bearish engulfing candle. On July 08, the support level at $109 was tested and the bulls reacted against the price decrease. The bulls have been dominating the USDJPY market since four days ago. Today, the price is pulling back as the bears are in control of the USDJPY market.

The price is trading above the 9 periods EMA and 21 periods EMA as a sign of bullish movement. In case bulls increase their pressure, USDJPY may increase towards the resistance level of $111 and if the daily candle close above it, it will increase the price to $113 resistance level. Should the bulls’ pressure fails at resistance level of $110, price may reverse and the bearish movement may continue towards the support level at $109, $108 and $107.

 USDJPY Medium-term Trend: Bullish

USDJPY is on the bullish movement on the 4-hour chart. The currency pair was on the bearish movement last week. The bearish momentum pushed the price to the support level at $109. A bullish engulfing candle formed and this triggered the bulls’ pressure. The price increase towards the resistance level of $110 after crossing the two dynamic resistance upside.

The price is trading above the 9 periods EMA and the 21 periods EMA, the Relative Strength Index period 14 is at 50 levels with the signal line displaying a bearish direction which may be a pullback.

The dollar edged lower in early European trade Wednesday, handing back some of the previous session’s sharp gains after a jump in U.S. inflation raised expectations of an early move by the Federal Reserve to tighten monetary policy.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.698, falling back from the previous session’s high of 92.832, just below the three-month peak of 92.844 reached last week.

USD/JPY dropped 0.1% to 110.48, EUR/USD rose 0.1% to 1.1789, just above its three-month low of 1.1772, while the risk-sensitive AUD/USD rose 0.2% to 0.7460.

U.S. consumer prices rose by 0.9% in June, the most in 13 years, with the year-on-year figure soaring 5.4% as the economic recovery gathered momentum.

“While everyone expected price pressures to increase, [this] report illustrates how significant the problem has become. Not only are prices rising sharply, but the increases are more widespread, which means prices can remain high for longer,” said Kathy Lien, an analyst at BK Asset Management, in a note.

This puts the spotlight firmly on Fed chair Jerome Powell as he testifies before Congress on Wednesday and Thursday, with the market looking for any signals on the timing of a tapering of stimulus and higher interest rates. 

Elsewhere, GBP/USD rose 0.2% to 1.3837 after U.K. consumer prices climbed 2.5% on the year in June, the biggest rise since August 2018 and the second month in a row that inflation has surprised to the upside.

While this will increase the pressure on the Bank of England to act, the data also showed factory gate prices rising more slowly, suggesting that the impact of the sharp commodity price rises is fading.

NZD/USD soared 1.2% to 0.7026 after New Zealand’s central bank ended its NZ$100 billion bond-buying program, effectively signaling that an interest rate hike was just around the corner.

The country’s economy has been less affected by the Covid-19 pandemic than many, growing 1.6% in the first quarter, raising concerns that the stimulative monetary policies could lead to overheating.

There are more central bank meetings due Wednesday. The Bank of Canada is widely expected to announce further asset tapering, while Turkey’s central bank is likely to keep interest rates unchanged for the fourth consecutive month given a weak currency and rising prices.

USD/CAD traded 0.1% lower at 1.249 and USD/TRY rose 0.1% to 8.6261.

Also, USD/ZAR fell 0.2% to 14.6922, with the rand bouncing slightly after falling almost 3% over the last week in the wake of the violence that erupted following the jailing of former President Jacob Zuma.

The dollar was up on Thursday morning in Asia but started a retreat from recent peaks. Investors digested economic data from China showing a slowdown in GDP growth and the economic recovery from COVID-19 alongside further dovish comments from U.S. Federal Reserve Chairman Jerome Powell over

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.01% to 92.410 by 12:38 AM ET (4:38 AM GMT).

The USD/JPY pair edged down 0.12% to 109.86 ahead of a Bank of Japan policy decision that will be handed down on Friday.

The AUD/USD pair was down 0.26% to 0.7460, with Australia releasing lower-than-expected labor data for June earlier in the day. The employment change was 29,100 and the full employment change was 51,600, while the unemployment rate was a better-than-expected 4.9%.

The NZD/USD pair was down 0.30% to 0.7011, paring some of its gains made after Wednesday’s Reserve Bank of New Zealand policy decision. The central bank’s surprise move to halt its large-scale asset-purchase program from the following week carried the New Zealand dollar through its best session in nearly five months overnight.

The USD/CNY pair inched down 0.07% to 6.4646, with the yuan easing from the one-month high hit during the previous session and last at 6.4613 per dollar in offshore trade.

Data released earlier in the day said the Chinese GDP grew 7.9% year-on-year and 1.3% quarter-on-quarter in the second quarter. Industrial production also grew 8.3% year-on-year in June while the unemployment rate was unchanged at 5%.

The data follows the People’s Bank of China’s surprise cut in the reserve requirement ratio during the previous week.

The GBP/USD pair edged down % to 1.3839.

Powell testified before the House of Representatives Financial Services Committee on Wednesday, where he said that monetary policy would remain accommodative and that inflationary pressures will likely moderate. However, he also warned that the Fed would act if inflation was persistently and materially above its 2% target. Investors now await Powell’s second round of testimony later in the day.

“The market is still on an uncertain path,” with investors neither entirely convinced Powell can keep policy super easy nor sure about the trajectory of recovery as the COVID-19 virus mutates, National Australia Bank (OTC:NABZY) strategist Rodrigo Catril told Reuters.

“The dynamics of different currencies seem to be being overwhelmed by the dollar dynamic,” which is in turn being driven by data and by the spread of the virus’ Delta variant, he added.

Investors now look to Jul. 19, when the U.K. hopes to lift almost all its remaining COVID-19 restrictions.

“The big experiment is really the full reopening in the U.K….. that could be successful, we think it’s going to be a huge factor in terms of confidence and pricing a broader and sustained recovery,” which could weaken the dollar, said Catril.

Two of the primary features of any price chart that are critical components for any price action trader to thoroughly understand, are support & resistance levels and price action event zones.

You are probably more familiar with “support and resistance levels” since they are one of the more basic technical analysis concepts and are pretty easy to understand.

However, price action event zones (also called event areas) are something I came up with years ago and so they may be a bit less familiar to you. But, they are equally as important as standard support & resistance areas, if not more.

In today’s lesson, I wanted to take some time to teach you about both of these pieces of the technical analysis ‘puzzle’ as well as assist you in differentiating between the two.

An elephant never forgets, neither does the market…

Elephants are said to have one of the best memories in the animal kingdom. The market, also has an amazing ‘memory’ in that major turning points on a price chart tend to carve out levels and zones that remain relevant for months and years into the future.

How many times have you seen a market turn, virtually on a ‘dime’, and then you zoom the chart out and see that same level was also a major turning point multiple years ago? THESE are the types of price action ‘footprints’ that we NEED to learn to follow and utilize.

Whilst I have written an article about event areas before, titled The Market Never Forgets, I want to reiterate exactly what these important areas on the chart are…

An event area (or zone) is a significant horizontal area on chart where an obvious price action signal formed OR from which a massive directional (up or down) move initiated (such as a massive sideways trading range breakout, for example). You can and should think of these event zones as a “hot spots” on the chart; a significant / important area on a chart that we should continue watching carefully as price retraces back to it in the future. We have an expectation that next time / if price re-visits these event zones, the market will AT LEAST pause and ‘think’ about whether or not it will reverse direction there.

• Event zones are key price action signal areas or major breakout zones from a key level or consolidation.
• Support & resistance levels are obvious horizontal levels that are drawn on a chart connecting bar highs or lows that are at or near the same price level. These levels can remain relevant on the chart for days, weeks or years, but they are, overall, less significant than price action event zones. See my tutorial on how to draw support and resistance levels for more.

Price Action Event Areas

As discussed above, a price action event area will remain relevant well after it forms. If a market comes back and re-tests these areas, they provide a “hot spot” and a good opportunity-area to look for a second chance trade entry. So, don’t worry if you missed the original move from the event area, there is usually another opportunity at an event zone and the market will be there tomorrow, don’t forget!

Large and significant events / moves on the price charts are remembered and other professional traders know this. These past event zones often become self-fulfilling turning points simply because so many other traders expect price to turn there and are already waiting to buy or sell at them.

Let’s look at some example charts…

Perhaps the easiest way to understand a “price action event area” is by a clear and unmistakable event, such as a pin bar signal. If an obvious price action signal forms and price follows-through in agreement with the signal, making a strong move, you now have an event area at the level / area of the signal’s formation.

An important point to remember about this is that if you miss the original event move, don’t worry! You can often get a second chance entry by simply waiting for price to retrace back to that same event area. You don’t even need a price action confirmation signal on the retrace either, you can enter blindly at an existing event area. However, if you do get another clear price action signal on the retrace, as in the example chart below, it’s even better!

The event area seen below through 1305.00 in Gold, was solidified by both a signal and a breakout. Notice the first pin bar signal on the chart just above that level, then price eventually broke down through 1305.00, breaking out, further hammer-home that this level was a strong event level.

In the next event area example, we are looking at the S&P 500 daily chart. Notice that after a powerful down-move, a couple of long-tailed bullish reversal bars formed in early February, leading to a powerful up-move. The event-zone was forged at that point. We now can watch that area as a “hotspot” on the chart to watch when price pulls back to it again.

Notice the pin bar buy signal that formed after a pull back to that event zone. This was a near picture-perfect buy signal because we had the confluence of the event-zone as well as a well-defined signal.

Support & Resistance Levels

Support and resistance levels are simply horizontal levels on the chart that can be drawn across bar highs and lows. There can be many support and resistance levels on a chart, so we mainly pay attention to the more significant ones.

I’ve written several tutorials on how to draw support and resistance levels as well as how professionals draw support and resistance levels.

In the example below, notice there is not obvious price action signal and no strong breakout from consolidation or a level. These levels are just standard support and resistance levels being drawn in across bar highs and lows.

There are usually many more standard support and resistance levels than event zones on a chart, even on a daily chart time frame / higher time frame. The main point to understand about this fact, is that event-zones are more important since they reflect a major price event, whereas support and resistance levels can be drawn across smaller market turning points that are typically less significant. See example below of standard support and resistance levels.

What are the main differences between the two?

The difference between an event zone and standard support and resistance level or area can seem quite subtle, but there is a distinction.

The easiest way to put it would be, every event-zone is also a support or resistance level / area, but not every support and resistance level is an event zone.

Here’s how you can differentiate the two…

An event zone has to either have a price action signal that led to a big move OR a major price breakout from a consolidation area or level. Let’s look at some chart examples to show this more clearly:

Below, we see a clear example of an event zone, it was an event zone because:

• It was the area on the chart where a major breakout occurred. Notice the long consolidation range before the breakout. Hence when that breakout finally occurred, it was a powerful price action “event”. This level on the EURUSD chart will likely remain relevant well into the future.

Next, we see a clear example of support and resistance levels drawn on a chart. These are not event areas because:

• There was no long consolidation preceding a breakout.
• There was no strong / vivid price action signal that kicked off a powerful move from these levels.

Event zones and support / resistance levels help define trade risk

Another important feature and benefit of event zones and support and resistance levels is that they help us define our risk on a trade. More specifically, they help us determine where to place our stop losses and how to know when the market has invalidated our trade idea.

You can obviously place a stop loss just beyond a support or resistance level, because if price violates that level, the thinking is that the market is changing and your original trade idea is now unlikely to work.

An event zone is often a more significant support / resistance area so it’s an even better barometer of trade risk than a standard level. If a market breaks past an event zone, you KNOW your trade idea is not working and market sentiment is severely shifting.

If you have a clear price action signal / pattern at an event zone, you can fine-tune your risk even more, because these signals are often very-high probability and hence we can place our stop loss at the high or low of the signal and often we can then enter on a retrace of the signal, on what I call a trade entry trick, which allows for huge potential risk reward trades:

I have been learning about the markets and trading them for nearly two decades now. Trust me, when I see this written out in text, it makes me realize two things:

1. I am getting old, lol.
2. I have learned A LOT in those 18 years.

In fact, I have learned so much that it can be difficult to even decide where to begin sometimes, when it comes to helping beginning traders. The industry has changed dramatically since I first started trading. I remember actually calling in my buy and sell orders to my broker, who does that anymore??!

As I grow older, I feel a deeper and deeper desire to give back and to help younger traders and those who are new to the game. Trading can be a very deceiving profession and if you do not spend the time to learn from those who have already been around the ‘block’ a few times, you’re going to waste a lot of time and money.

I sat down at a coffee shop whilst writing this and I had a very long think about the most important lessons I have learned in 18 years of trading the markets.

In no particular order and all equally important, here is what I decided are the top 10 things I’ve learned on my trading journey…

1. Be a defensive-minded trader.

The famous quote by Warren Buffet about losing money goes something like:

“Rule #1, Never lose money. Rule #2, never forget rule number one”.

Beginning traders often approach the market from the complete wrong mindset. They are just trying to make money as fast as possible, when in reality, they should be trying to protect their money as much as possible. You really cannot operate in both mental states at the same time. You have to pick between the two and if you do not choose to protect your money as much as possible, you’re probably going to lose it.

• The best offense? A good defense.

You hear this a lot in the sporting world but it also applies to trading: The best offense is a good defense. Here’s why:

The way you achieve long-term consistent trading success is by being defensive in your approach. That means, you only trade when the market conditions are right, when all your trading plan criteria has been met. The goal of trading is not just to “make money”, but also to not lose money you have made! These are two different things that require extreme mental fortitude.

It is not surprising for a beginning trader to get lucky and hit a few good trades, or even to simply do well for a while by following their plan (not just lucky). However, it’s after doing well for a while that many, if not most, blow it. Traders get confident, cocky, arrogant, whatever you want to call it. The point is that winning feels good and it OFTEN goes to a trader’s head, quickly. All that good, defensive, slow, methodical work that you did to hit those winners tends to go flying out the window when the sensation of winning floods your brain with feel-good chemicals.

• Preservation of trading capital is key to success

Working to preserve your trading capital is essentially how you behave in a defensive manner in the market.

Think about it like this: you want to have as much ‘ammo’ (money) in your ‘gun’ (trading account) as possible when the easy prey comes along. You do not want to be out there shooting at difficult prey that you aren’t going to catch, then when an easy subject comes along you only have one bullet left. You want that chamber full of bullets so you can secure the prey.

In trading, you want to preserve your risk capital for the ‘easy’ trade setups, those high probability price action signals that are so obvious they are literally speaking to you! You don’t want to waste your money on those ‘on the fence’ signals that you go digging for confirmation on the internet for. The best signals are super obvious, most of the time, and that is something I’ve definitely learned over the years.

You will never get upset with yourself (at least you shouldn’t) for taking a strong and confluent trade signal that fails, as long as you managed your risk properly. But, if you take a signal that you weren’t sure about, that “sort of” looked like a signal but “not really”, and you lose, you’re going to be kicking yourself.

My goal as a trader is to never feel like I want to kick myself after a trade, win, lose or draw.

2. Watching Charts & Monitoring Trades Will Actually Hurt Your Results

Often, in life, the more we meddle with something the worse it becomes. If you’re in an argument with your significant other and you continue to bring up that argument and rehash it, is that it going to be better than just dropping it and moving on? No, of course not. Most of the time, over-involvement is a negative thing and when we are too involved with our trades, it typically is a very, very bad thing.

How many times have you been in a trade and you kept checking it and you ended up adding to the position, closing it out too soon or doing something else that you otherwise wouldn’t have, and it ended up back-firing? This is very common and one of the biggest trading mistakes that causes traders to lose money.

•  Enter your trades and then stop thinking about them

The easiest way to avoid the pitfall of over-watching and over-thinking about your trades? Set and forget. I know I’ve said it a lot, but I will say it again because it’s perhaps the most important trading lesson I have ever learned: the less involved you are with your trades, the better you’re going to do. This is why I have written articles on the set and forget trading approach and on focusing on daily chart time frames. You see, when you simply follow your trading plan and let the trades play out, let your trading edge play out uninterrupted, THAT is real skill, that is real discipline and passion. These traders who are just “running and gunning” instead of trading like a sniper, are not trading with skill or discipline, they are gambling. They can’t stop trading because they can’t forget about the market.

You have to literally forget about the market for a while when you have a trade on. The most effective way to do this is to not risk more than you are comfortable with losing. The number one reason traders start watching the charts too much and meddling with their trades, is that they’ve risked too much money on that trade.

3. The results of your last trade should not affect your next trade.

Another very, very important lesson that traders often do not learn or understand until years into their trading journey is that the outcome of your last trade has (and should have) zero bearing on your next trade. In other words, you should never let your last trade influence your next trade.

Every single trade you take is different and unique from the previous one(s). There literally are no two trade signals that are exactly the same. Even if they look the same, the surrounding market context will be different, so they aren’t the same. This is important to understand because traders often make assumptions about their next trade based off their last trade or past trades.

• Winners and losers are random

The results of any trading edge / strategy are randomly distributed. What this means is, if you take 100 trades in a year and you had say 50 wins and 50 losses, the pattern of those wins and losses is totally random. You could have 10 losses in a row followed by 2 winners followed by 10 more losers, then followed by 20 winners. The question is, how are you going to handle such a random distribution of wins and losses? If you’re anything like most traders, you’re going to let it affect you very, very negatively. Can you handle 2 losses in a row? 5? How about 10? Most people can’t and that is why most people fail. It can be very hard to see the forest from the trees as a trader, but you have to if you want to succeed long-term.

What I mean by “see the forest from the trees” is not letting any single trade result distract you. If you start letting single trades influence you, you will lose sight of the bigger picture of what you’re supposed to be doing and what it takes to succeed long-term.

• Be extra-careful after a big winner

Traders often become overly-fearful after a losing trade and overly-confident after a winner. Now, whilst neither is good, I feel it’s riskier to become over-confident. When you get over-confident you end up taking bigger risks in the market and this can obviously result in bigger losses, kicking off a cascade of emotions and trading mistakes that can literally wipe your account out in a day’s time. It’s important to take some time off after a trade closes out and calm down, reflect, breathe. The market will be there tomorrow, so always remember that. You should never feel like it’s “urgent” to be in a trade.

4. Doing LESS will actually get you MORE…

Most traders fail simply because they do too much. They do too much research (yes you can do too much research), too much reading, too much thinking about trading, too much watching the charts, too much trading in general.

It’s important to realize the power of doing nothing as a trader. Many times, if not most of the time, doing nothing is the most PROFITABLE thing you can do! Here’s why:

• Low-frequency trading

Ok, I know this isn’t probably what you want to hear, but since when have I been worried about telling people what they want to hear and not what they NEED to hear?? Never.

There aren’t that many good trade signals on any given month in the markets. What I mean is, there simply is not a large amount of high-probability entry signals on any given week or month. Why? Well, because most of the price action in a market is just random meaningless noise.

Your mission, as a price action analysis trader, is to learn to filter the good trade signals from the bad by learning how to read the footprint of the market; the price action. Once you master this, you will quickly realize that good trades that are worth risking your money on are relatively infrequent. But, the good part is, you do not need to trade a lot to make a lot of money in the markets.

• Hedge-fund trader’s mindset

A hedge-fund trader, controlling millions or billions in money, is not thinking about trading constantly. Instead, they are meticulously ‘combing’ through the price data of the markets they trade to find that ‘diamond in the rough’. They are looking for a high-probability trade that is WORTHY of risking their client’s precious capital on.

You should think like this too. It’s your money on the line, that you worked HARD for. So, do not throw it away on “so-so” setups that you think are “kinda, maybe” a good setup. Wait for those higher time frame trades on the 4-hour or daily chart time frame that are so obvious you’d feel stupid for not taking them.

Also, don’t overthink this. Often, traders think themselves right out of perfectly good trade setups. We have a tendency to start thinking “This trade is too good to be true” and so we settle for lower-probability trades that we feel good about because we spent 3 hours finding confirming news pieces on the internet that agree with the trade.

I am telling you, from 18 years of live-trading experience, the best trades are almost always the most obvious ones!

5. Know where you’re getting out BEFORE you get in!

When trading the markets, there is no boss, no “authority” figure telling you what to do. Hence, you have to make the rules. You have to discipline yourself and you have to hold yourself accountable. These are the reasons why most traders fail. Most people, left to their own devices, simply are not disciplined or self-controlled enough to do these things.

One mission-critical component of the trading process is determining your trade exit, BEFORE you click that buy or sell button. This is a huge lesson that took me multiple years early-on, to learn. Don’t let it take you that long!

• The exit is MUCH harder than the entry!

The only way you’re going to make money as a trader is to remove yourself from the trade exit process as much as possible. The exit is where most people screw the whole thing up. I’ve written many articles on trade exits, but one you should definitely check out is this one on a simple trade exit plan, it will help you see why simple is better with trade exits.

Most traders exit based on emotion. Doing so, typically results in either a very small win or a large loss. Rarely do many traders exit when a trade is heavily in their favor. Why? Emotions. When you’re up big all you can think about are all the “reasons why” that winning position will grow even more. It doesn’t cross your mind that YOU’RE BEING GREEDY or that the best time to exit is when you’re up BIG. It’s exactly the same mindset of a casino-goer. They keep pulling that slot machine arm even when they’re up and they know they will probably give that money back.

You have to find a way to force yourself to exit when a trade is in your favor, not when it’s crashing back against you about to turn into a loser. The only fool-proof way to do this is to have a strict profit-taking plan that you follow religiously. If you leave the exit up to the moment, you will be left to exiting on your own discretion, which typically doesn’t end well for most people

6. Be out of the market much more than you’re in.

One of the most important lessons I have learned over my 18+ years of trading the markets, is that trading too much is a quick way to lose all your money.

Most traders come into the market and as soon as they fund their first live account they are off to the ‘races’, over-trading and dealing with the consequences later. It’s a difficult lesson to learn, and most traders don’t actually learn it until they’ve lost more money than they can stand to think about, but the fact is, if you do not learn to trade with low-frequency, you’re going to find yourself losing at a high-frequency.

• Get comfortable with the daily chart time frame

If you’ve followed me for any length of time, you know that I have written many articles about the power of higher time frame charts and why you should focus on them. One of the biggest reasons to focus on higher time frames is that they act as a natural ‘filter’ for all the noise of the market and if you follow your trading plan strictly you will naturally trade less often just by focusing on them.

The daily chart is really the key to technical analysis in my opinion. Learn to trade the daily chart first and foremost and center your entire trading strategy around it and you will already be light-years ahead of the masses of traders out there day trading all their money away.

7. Can you fall asleep and sleep soundly at night?

You will find a million different risk management strategies on the internet, but most of them either don’t work, are illogical or overly-complicated. In all my years of trading I have found no better way to gauge if I’m risking too much than the sleep test.

The most important measure of risk for a trader is their per-trade dollar (or whatever currency your account is in) risk. Meaning, what is your R-number, or your dollars risked per trade? If you don’t know this number, you’re already failing.

• The money management sleep-test

The single best way to test if you’re risking too much money per trade is to determine if you are preoccupied with that trade. In other words, are you thinking about the trade even when you’re away from your charts? Are you laying in bed thinking about that money you have risked? Are you waking up at night and sneaking downstairs to check the charts on your laptop? Or worse, laying in your bed checking on your phone?

If you are doing any or all of the above, you have a serious issue that needs fixed ASAP.

The ONLY way to have a fighting chance at sticking around long enough in the market to hit enough big market moves to make money, is by making sure you aren’t risking too much money per trade.

If you find you are overly-worried about your trades and you cannot sleep because of it, then back off the risk until you can easily fall asleep. Reduce your position size on your next trade and keep reducing it until you can confidently close up your charts and not be worried or overly preoccupied with your trades. Trust me on this, it works and it will help you avoid many other trading mistakes that are the result of risking too much!

8. Know what the h$%! you’re doing before you start trading real money!

This one may seem obvious, but many traders start trading real money without actually understanding how to use the platform their using or having a trading strategy. They are, for all practical purposes, gambling. Don’t be like them.

There are a few things you NEED to do before you star trading real money, if you don’t want to lose it all right away that is.

• Master your trading strategy

I feel like this point is so obvious, but or many traders it is something they gloss over. You simply cannot start trading live without having mastered your trading strategy. Doing so is like trying to fly a commercial airliner without any training and hoping you don’t crash. Not gonna happen.

I obviously recommend you learn and trading with my price action strategies that I detail in my trading courses, but more important FOR YOU, is to make sure that whatever strategy you do use, you both commit to it and master is before going live. Don’t waffle and wander. Don’t try combining a bunch of different trading methods, this doesn’t work, trust me.

• Master your money management

As I said in point 7 above, you have to be able to sleep at night with the money you are risking in the market if you want to have a chance at long-term success, so first figure out what that dollar amount is for YOU. Don’t stray from that dollar amount or increase it until you’re seeing consistent success.

• Demo trade it first

Both of the two sub-points above, mastering your trading strategy and money management are things you need to demo trade for 2-4 months before going live. You must learn the mechanics of the platform you’re using before you start risking real money on it, or else you will lose money just to making stupid mistakes like inputting the wrong position size, etc.

9. Have you mastered yourself yet? If not, you need to.

If I had to give you just once piece of trading advice, the most important lesson I have learned in 18 years of trading, it is to master yourself if you want to master the markets.

Until you deal with the mental / emotional weaknesses that you have (we all have some), you will never make consistent money as a trader. Trading success is much more the result of going on a personal journey and conquering the pitfalls and ‘enemies’ in your mind, than  the trading method you use. Most traders don’t realize this fact until it’s too late.

• Check your ego at the door

Ego-check. Leave it at the door or it will eat you alive in the markets, every time. Being confident is a great quality in life and for a trader, but there’s a very fine line between being “confident” and being overly-confident, and it’s a line you cannot afford to cross, literally. Over-confidence sneaks up on even the greatest of traders, leading them to take a trade they probably shouldn’t have taken or leading them to make other mistakes. Typically, a trader becomes over-confident after hitting a few good winning trades, they then let this go to their heads and start over-trading because they feel like they have some secret trading power now. This is very, very dangerous.

• Show me a disciplined person and I’ll show you a good trader

What is self-discipline in regards to trading? We talk about it “discipline” a lot, but what does it look like as a trader? It looks like this: You just exited a very profitable trade, you’re feeling great, feeling wonderful. What you do next will tell me if you’re disciplined enough to KEEP making money, or not.

A disciplined trader will do nothing out of the ordinary at this point. They will continue with their trading plan. In fact, they will probably close the computer and come back tomorrow when the euphoric-feeling they got from winning subsides. You can and should build things like this into your trading plan. For example, you have a section called “What to do after a winning trade” where you detail how you will leave the market along for 24-48 hours after a winner,

An undisciplined trader, upon closing out a nice winner, will immediately jump back into the market, or jump back into a trade that same day. This is almost always a mistake. RARELY is there going to be a high-probability trade signal waiting for you right after you just exited a big winning trade. Trust me.

10. Confluence is King

As far as your actual trade entries go, the most important lesson I’ve learned over my 18+ years in the market is that the more confluence a trade has, the better. Confluence in trading means multiple supporting factors intersecting or lining up in support of a trade.

Typically, on the charts this looks like a clear signal combined with a key chart level in the context of a trending market. I call this the T.L.S. method or Trend, Level, Signal. Ideally, you’ll have all 3 lining up, but you can get away with just 2 of the 3.

• If you want a trade entry “system”, here it is:

Many traders want mechanical trading systems with strict rules to follow, to eliminate the potential for human error. Whilst I am generally not a proponent of mechanical / rigid trading systems like robot trading, the T.L.S. method can be a form of mechanical trading for a price action trader.

You simply write into your trading plan that any trade you take MUST have the trend, level and signal in agreement, or you don’t enter it. These types of things are good for beginning traders, to build confidence and discipline. I recommend you try this if you’re new or struggling.

Like most traders, I was obsessed with day trading at the start of my career, it’s what I studied, it’s how I traded, it was how I lived. However, I quickly discovered that something was wrong. I just couldn’t seem to make any money trading this way. It was stressful, time-consuming, difficult and even maddening at times. I would make money on a trade and then give it right back. It seemed like I would take one step forward and then two steps back.

In short, it quickly became very clear to me that dodging in and out of the market all day, trading short time frames was really no different than gambling on a slot machine at the casino, I was just doing it from my home. I had spent more than enough time in the trenches early in my career to realize that day trading was unnecessarily difficult, I knew it wasn’t going to work for me and I hadn’t met anyone else it was working for. So, I had to evolve and try a different approach to trading or I was going to lose all my money, quickly.

This was when I decided to stop day-trading and start thinking differently about the market. I began looking into higher time frame charts and taking a lower-frequency approach to trading. I quickly found my groove once I began focusing on the daily chart and trading less often. It was a far less time-consuming, less stressful and just an overall friendlier approach to how I wanted to live my life.

I found that not only was I suffering less losing trades, I also would catch bigger moves and my trading costs (spreads / commissions) went way down because I wasn’t entering and exiting the market so often. Instead of taking 30 to 50 trades a month (or more) as with day trading, I was now only taking 4 to 5 trades a month some months.

Currently, I trade just 30 minutes a day from anywhere I want; I don’t need to be plugged into some multi-monitor trading desk all day. I actually get to live my life on my own terms; free and flexible. Ultimately, this style of trading and the life it lets me lead, allows me to enjoy the fruits of my trading much more than day trading ever could.

Day Trading Won’t Give You A Great Lifestyle

In Hollywood movies, day traders are often portrayed as young rich guys living a fast-paced life of fast cars, big houses and risky behavior that seems to always end up working out somehow. Hence, when someone first gets interested in trading this is usually pretty close to the image they have in their minds of what day trading will be like and what it will offer them.

My issue with this is that it’s basically completely wrong and totally misleading. Also, this misrepresentation of reality causes many traders to blow out numerous accounts and lose a lot of money before they figure out they need to take a different approach.

Do you like sitting in a chair all day staring at your computer screen? Well, this is basically what day traders do. You literally have to be at your computer for 6-8 hours a day to properly execute most day trading strategies. You have to take many, many trades in order to see the edge (potentially) play out over the course of hundreds and thousands of trades. Even if you manage to do this, most day trading systems require you endure a lot of losses simply because it’s a numbers game, not a high-probability edge like higher-time frame trading can provide.

The very reason we become traders is to make money and ENJOY a lifestyle that is different from a 9 to 5 office job where you are essentially a slave-drone worker to a company all day. If you choose to be a day trader you are basically a slave to the screens all day and your head is filled with information overload, stress, pressure and on and on, not much different than that 9 to 5 office job except that you might actually make money at the office!

• Here’s How a Trader Gets a Great Lifestyle

When you make the shift from day trading / constant chart-watching to a higher time frame, end of day trading approach, a lot of things quickly change.

You suddenly gain a massive amount of time (which you’ll need to fill), your trading mindset becomes better and clearer and you are now moving closer to becoming a successful trader.

I recently wrote an article on how to trade like a hedge fund manager and in that article I discussed how hedge fund traders are not day-trading. They are not sitting there taking a 5 minute view of the market trying to duck in and out of it all day, to them that is just stupid, and it should seem that way to you too.

Trading higher time frames means you don’t have to be checking the charts all the time. You can spend just 30 minutes a day, trading from a coffee shop or wherever, it’s up to you. The point is, when it comes to lifestyle, the end-of-day trader wins easily against the day trader, it’s not even close.

You Won’t Make More Money Day Trading

A lot of newbie traders believe they will make more money day-trading than position or swing trading the higher time frames. It seems logical; you trade more you make more, right? WRONG. It’s so wrong that it makes me mad just thinking about the misinformation that is spread online, enticing beginners into day-trading, which is why I’m writing this article!

• Here’s Why You’ll Make More Money If You Don’t Day Trade

Have you ever met a profitable, successful day trader like you see in the movies? No? Me either. There’s a good reason for this, it’s nearly impossible to achieve great success day-trading, let alone maintain that success over time.

Day-trading involves dealing with a lot of meaningless lower time frame market noise. This noise that is essentially random price movement on short time frame charts, is something that can easily slice your trading account into a million pieces that quickly flow down the ‘drain’ and out of your account.

As mentioned earlier, spreads, broker fees, etc. rack up very quickly when you’re day trading. Every transaction you make in the market costs you money, so when you’re trading 30 – 100 times a month (or more) those seemingly small costs will add up to a significant sum of money over the course of a year.

However, that is just the tip of the iceberg, so to speak. You’re going to have a lot of losing trades with a day trading method. In fact, most day trading strategies involve poor risk reward scenarios, like 1:1 or less. This is because you’re aiming for small wins when you’re day trading, also known as “scalping the market”, so you’re not holding trades long enough for them to turn into big winners. With small risk rewards of 1:1 or worse, just to breakeven you need to win more than 50% of the time, to offset spreads and commissions, this is very hard to do with a day-trading system that falls prey to the random market noise and intraday “churn” of the price action in the market.

If you decide to trade end-of-day strategies, higher time frames and focus on the daily chart time frame like I teach in my courses and members area, you’re going to have an easier time making money because you are not fighting the intraday churn of meaningless market noise. Instead, you are waiting strategically for a high-probability price action signal to form in confluence with the surrounding market context. These signals will produce bigger movements since you’re on the higher time frames. Also, since the higher time frames carry more weight, you’re more likely to get a win on any given daily chart signal compared to any given 5 or 1 minute chart signal. This means, you’re risk reward can become more favorable now, think 1:2, 1:3 or even higher! Hence, you do not have to trade as much nor do you have to win as much (as with day trading) to actually make a profit!

I don’t know about you but I am all about DOING LESS TO GET MORE!

You’re Not Going to Be Able to Quit Your Day Job and Day Trade All Day

A lot of traders seem to get the fantasy in their heads that they will simply be able to quit their day job and start day trading all day and somehow magically make money. This is not reality. Sadly, I know quite a few traders who quit their day jobs too soon because they thought they could make money day trading, only to find that not only were they not making any money anymore, they were now losing money from day trading!

• How to Trade Around Your Day Job

Thankfully, there is a perfectly effective way to maintain your current job while you are trading. I’ve written many articles about trading with a day job, but the most important thing to know is that not only does higher time frame trading allow you to trade around your current schedule, but doing so will actually accelerate your trading progress for a number of reasons…

A day job is a natural distraction from the market, and may people need this because they simply become addicted to the charts otherwise. It’s important to realize that not only is day-trading very difficult to profit at but even if you manage to do so, the temptation from constantly being in front of the chart is just too much for most people to handle.

Your goal should be to make a trading routine wherein you are checking the markets sometime in the morning for 15 – 20 minutes and sometime in the evening / before bed for 15 – 20 minutes. Once you have learned how to trade properly, there really is no need to spend more than 1 hour per day looking at your charts. In fact, I would argue that after about 45 minutes to an hour a day, each additional minute you spend analyzing the charts will negatively impact your long-term trading success.

Don’t think about “quitting your job” right now. Instead, utilize your job to keep the income flowing steadily (this will help maintain a clear and calm mindset that you need for trading) and also to maintain a natural distraction from the intraday market noise that costs many traders their trading accounts. IF you are ever able to quit your job and become a “full time” trader, you will know when the time comes. Whatever you do, don’t go quitting because you “think” you can make money trading. Wait until you’ve BEEN making money consistently for one year or more.

Day Trading Does Not Give You More Opportunities

One of the most widespread misconceptions about day trading is that it provides traders with “more opportunities” (to make money). Sure, I won’t argue that you will enter more trades as a day trader, but are those really good opportunities to profit? I would say no, they are not.

In my opinion, an “opportunity” is something that will likely lead to something positive for you, and the greater “opportunities” people speak of in regards to to day trading are certainly not all positive. Hence, the higher quantity of ‘opportunities’ that day trading offers is not at all what it seems. I look at it as more opportunities to lose your money!

• The Real Opportunities in the Market

The opportunities that a higher time frame, swing trader has are much, much better than those of the day trading variety.

Not only are the trading opportunities on the daily chart much higher probability than those on small time frames, they are also much better for your mind and your body. You are not sitting all day slouched over in a chair frantically combing the 1 minute charts for your signal to pop up. This is mentally and physically draining! Instead, an end of day trader simply follows their routine, checking the higher time frame charts at their predesignated times each day, for 20-30 minutes. They execute their trading plan and then walk away.

This is an opportunity to live the life you have always dreamed, and in my opinion, ONLY higher time frame trading affords you such an opportunity.

Exiting trades too early is something many of you struggle with on a regular basis. I know for me, this was one of the most difficult trading mistakes to overcome. How many times have you exited a trade manually for a either a small win or a small loss and then the next day felt like slapping yourself in the face for doing so? I’m willing to bet it’s been more than a few.

This article is for those of you who have difficulty holding onto trades and who exit winning trades too soon or close losses before they actually hit your stop loss, time and time again.

There is usually a mix of contributing factors that cause traders to exit trades too early. It may be due to your trading process, trading psychology (mindset), personal belief systems, recency bias or some combination of those.

The most common types of premature trade exits that lead to regret are the following:

• Exiting a trade at break even constantly due to fear of loss, only to watch a large portion of these trades become winners. (Breakeven is actually a loss because of the spread or commission you pay to the broker!)
• Exiting a trade for a small profit but well before your planned profit target because you fear the market will reverse, only to watch the trade go on to hit your initial target and more.
• Exiting a standard trade at a partial loss for whatever reason you can come up with, well before the stop loss is reached, only to watch the trade go on to be a winner.
• Inability to pyramid into positions (add to winning positions), and constantly exiting these larger positions, fearing the market will reverse.

The Four Main Contributing Factors to Early Trade Exits

1. Improper Trading Process and Poor Understanding of Market Realities

The most common reason traders exit trades too early is that they simply don’t really know what they’re doing. They are trading with real money before actually having developed a concept of what their overall trading approach is and how to properly function in the market in regards to entries, exits and trade management.

If you are over-involved with your trades, sitting there all day and night staring at the charts, you’re probably going to end up screwing up the exits. Traders who have not yet learned to set and forget and ACTUALLY forget their trades after entering them, are the ones who tend to exit trades too early all the time.

If you haven’t yet learned the importance of letting the market take you out and how to do it, you really need to, asap. By letting the market take you out of your trades you are trading in-line with the market and not fighting it or trying to control it. This is the right way to manage a trade exit. You cannot predict which trades will be big winners, but by letting the market take you out, you will position yourself to take advantage of big moves when they occur. Catching big moves in the market is how fortunes are made, not by taking tiny, emotionally-charged winners.

It’s important to remember that trades go further than you think, generally speaking. This means, a good move or trend can run on much longer than you think it can. Whilst the amateurs / losers are continuously trying to predict the trend change, the professionals are happy to take “chunks” out of the market as it consistently trends higher or lower.

One of the biggest culprits of early trade exits is traders risking too much money per trade. When you over-leverage your account you are naturally more nervous and sensitive to every tick for or against your position. You imagine every move against you is the end and every move in your favor is money you need to secure; hence resulting in exiting too early! You need to reduce your dollar risk per trade until your emotions are in-check and you are able to fall asleep without worrying about your trades.

2. Recency Bias

Recency bias is a phenomenon of human psychology that essentially says our most recent experiences have more of an effect on our behavior than older experiences do. If you haven’t already done so, check out my article on recency bias in trading to learn more.

What we are concerned with here is how recent losses in trading or even other negative recent experiences can work to reinforce overly-conservative or defensive feelings in the market, in other words, they can make you fearful.

Traders often get overly-influenced by their recent trades, so if they’ve had a few losses in a row they start getting scared and start seeing the market as more risky than it may be and they start losing faith in their trade edge (very dangerous). It’s critical to remember that your trading edge materializes only over a large sample size of trades and you can never know for sure WHICH trade will be a winner and which will be a loser, until it’s over of course. Hence, to let your last trade or even your last several trades influence your feelings and behavior for your next trade, is simply not productive or logical.

3. Trading Psychology (mindset)

Not having the right mindset about trading and not understanding key realities of how markets move, is something that will definitely contribute to exiting trades too early.

Many people come into trading thinking they will get rich quick and they even quit their jobs before they’re actually making money trading, because they’re “so sure” they will making a living trading.

The truth is, only about 10% of traders survive long-term, and if you want to be one them you’ve to act and behave differently than the other 90%. How do you do that, you ask? Well, behavior is the result of mindset. Your mindset influences your habits and your habits essentially are what make or break you in the market. So, it all starts with having and maintaining the proper trading mindset.

You’ve got to accept that slow and steady wins the race and that a low frequency trading approach is how you making money “fast”. The more you try to make money, the more you will lose. Trading success is the result of focusing on trading performance; being consistent and doing all the little things right day in and day out so that there are no huge swings in your equity curve. Once you truly accept these things your mindset will be much closer to where it needs to be to become a successful trader.

4. Belief Systems and Past Experiences in Life

Many traders come into the market almost expecting it to not work out for them. They think self-deprecating things like “Well, I’ve always been poor so I will probably keep being poor”, especially after they have a losing trade or two. You cannot let negative thoughts infect your mindset or they will lead to negative emotions and poor trading habits that result in more losing!

Like it or not, what you believe about many different topics can and will have an influence on how you think about money, trading and wealth, and of course that can negatively influence your trade exits. If you are a very skeptical or negative type of person or someone who doesn’t believe that people should make money through speculation (for whatever reason) then you will have a hard time letting your trades roll into big winners. This doesn’t even have to be a conscious thing, it can be something subconscious that is affecting your decisions in the market.

The bottom line, is that to trade successfully you need to look inward and really become a student of not just the markets, but of yourself, and then you need to master both. If you do not master yourself and your own faulty thinking and logic, I promise you won’t make money in the markets no matter how good a trader you are. Likewise, if you don’t master your trading strategy and truly get in-tune with the markets you trade, you will also not make money trading.

You need to come into trading as an “empty slate” and not be skeptical of those who are teaching you or who seem to know more than you. Yes, traders do make a lot of money from speculating, not all, but some and my goal is to help you be one of the “some” who do, but I can’t help you if you don’t forget everything you thought you knew about trading behind and approach this with an open mind.

How to Prevent Early Trade Exits

Eliminating the mistake of early trade exits isn’t that difficult, it really just takes a bit of education combined with some good ole’ fashioned self-discipline. I can help you with the former but the latter is truly in your hands (I can’t force you to be disciplined).

The best way to avoid exiting trades too early is to have a trading plan that lays out your trade exit strategy and then sticking to it, no matter what. You will need to understand why set and forget trading is so powerful and be able to walk away from the market when your trades are live. Find a distraction, get a hobby, etc. the cardinal sin of trading is watching the screens too much especially with a live trade on.

Other things that can help are, having a trading journal where you record all your trades and the results, this is something that will help to keep you accountable as you trade. Having some trading affirmations that you read regularly will also help to remind you of the core principles you need to follow as well as work to train your brain in proper trading psychology and procedures.

Avoiding common early trade exit scenarios

Next, I want to drill-down and get a bit more specific by discussing some common problems that affect traders in regards to exiting trades too soon and provide some insight that might help. Now, this isn’t a perfect science, so keep that in mind, but I am trying to help you by sharing what I have learned over 18 years in the markets…

Scenario:

Exiting a trade a break even constantly due to fear of loss.

Solution:

Losing happens. Especially in trading. You’re going to have a losing trades, that is a given. The question is how well prepared are you for them and have you learned to lose properly? Yes, there is a proper and improper way to lose trades, read the previously linked text if you don’t yet know the difference. Fear is the enemy of trading success and if you are in a state of constant fear, you’re probably going to mess up your trade exits on a regular basis.

Expect to lose 1R (1 times risk) on every trade you take and give the trade room to breathe by using a wide stop loss if necessary. First, you determine what your 1R risk is per trade; what amount are you comfortable with losing on any given trade? Then, when you find a suitable trade setup, you place your stop loss properly and then you adjust your position size to maintain that 1R risk. Once the trade is live, you say “OK”, I am fine if I lose because I am comfortable potentially losing the amount I’ve risked and I know for me to possibly win I have to leave the trade alone and the let the market do it’s thing by simply backing off and leaving the screens alone. You might think by exiting at breakeven you’re avoiding a loss, but you are also potentially avoiding a win! You need to give every trade a chance to work in your favor. Accept that there is risk in trading and manage that risk properly, don’t be afraid of it!

Scenario:

Exiting a trade for a small profit, but well before your planned profit target.

Solution:

I get it, I do. You get up a decent amount of money and you think “I really should take this profit so this trade is a winner”. But in the grand scheme of things, you won’t survive on just little winners, even 1R winners aren’t enough to really make money over the long-run. You need 2R winners, 3R winners and a few “home runs” in the mix to really have a chance at long-term trading success.

You have to ignore the temptation to exit a trade for a small profit just because you see a “1 hour pin bar against your position”. What time frame did you take the trade on? The daily? Then why are you looking at the 1 hour to exit?! Stick with the plan, man! Don’t panic and don’t take small winners all the time because small winners are easily erased by normal sized 1R losing trades. You have to have patience if you want to hit big winning trades, you need to give every trade room and time to grow.

Now, that isn’t to say there isn’t a time and place for a 1R winner, because certainly it may make sense sometimes. But if you are thinking you will get ahead by chronically taking small winners, you are playing a game of slow, painful defeat my friend.

Scenario:

Exiting a trade at a partial loss for whatever reason you can come up with.

Solution:

Ever hear of “death by a thousand cuts”? Many traders kill their trading accounts by taking many small losses. Sure, it feels better than taking a bigger or standard 1R loss, but when you manually close out a trade for a small loss, before it has reached your stop loss, what you are also doing is voluntarily eliminating the opportunity the original trade idea presented, before it’s actually been eliminated. The market will show you if you were wrong or right given enough time, you need to allow it to do that. You have no idea where the market will go once your trade is live, you only know that you had a trade idea and that idea represents your edge. You have provided a stop loss for the trade that is (should be) at a point on the chart that would logically nullify your trade idea IF price reaches it. Don’t be swayed by the intraday price movement and tempted to close the trade out early just because your emotions are getting the better of you. Stick. To. The. Plan.

Scenario:

Inability to pyramid into positions (add to winning positions), fearing the market will reverse.

Solution:

How do you create real wealth from trading? By taking advantage of those rare times when one of your favorite markets is really trending strongly. I am talking about those trends that just seem to keep going in one direction with little to no pull backs. Many traders struggle with these moves because they seem almost “unreal” or “too good to be true”. But, they can and do happen and you need to really take advantage of them to build your account and put yourself ahead.

If you haven’t already done so, read my article on how to pyramid into trades to learn more about how this is done. There is a method to it, but essentially you are adding to winning positions at logical points so as to “snowball” your initial 1R risk into a much much larger risk reward winner. One good winner like this year can literally be the difference between a losing year or a very lucrative year for many traders.

You can’t be afraid and think yourself out of big, profitable moves in the market. It helps to understand how to read the price action and the footprint of money on the charts so that you can identify when a market is really trending powerfully and might be ripe for pyramiding.

We all need a little trading inspiration from time to time, what better way to get that than to ponder on quotes from some of the greatest traders of all time?

I have read many trading books and biographies of famous traders that have helped me tremendously over the years. Some of their quotes have stuck with me and are essentially “mantras” that I repeat to myself daily as I look at the charts.

You will see a small paragraph that precedes each quote which explains what I personally take from that quote and what it means to me and how I apply it to my trading strategy.

Here are 13 of my all-time favorite trading quotes that I believe, if followed, WILL help transform your trading career:

1. Ed Seykota on trading with fundamentals (news trading):

Ed Seykota is one of the featured traders in Jack Schwager’s first Market Wizards books (excellent reading btw). Whilst he has many profound quotes and insights in the interview within the book, the following quote always stood out to me because I feel the exact same way about fundamental analysis.

If you read my article on why I don’t trade the news, you can learn more about why I feel this way. But, the basic idea is that news / fundamentals are already reflected via the price action on the charts, because the price action is literally the footprint of money. Markets tend to move based on expectations of future events, in this way, the actual news has already been processed and acted upon by the big traders when it is released to the public. So, it’s often futile to spend time researching economic reports and how they may or may not affect a particular market. In fact, doing so will often hurt your trading performance since the market may well do the opposite of what the news release implies. This is why I stick to pure price action trading; reading the charts and interpreting the footprint of money on them.

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.” – Ed Seykota

2. Richard Dennis on counter-trend trading:

Richard Dennis was one of the founders of the Turtle Trader’s experiment and has made hundreds of millions of dollars trading. How did he do this? Largely by trend-following, which was what the Turtle Trader experiment was all about. His quote here is more insightful than it may seem due to its brevity. Trading against the trend is often tempting but rarely fruitful. Even for very experienced traders, fighting a strong trend is not something they do because they know it often ends in a loss. This is a core piece of my trading approach as well. As a rule of thumb, I am always looking to trade with the trend before anything else.

“I’ve certainly done it – that is, made counter-trend initiations. However, as a rule of thumb, I don’t think you should do it.” – Richard Dennis

3. Stanley Druckenmiller on risk / reward:

Stanley Druckenmiller worked with George Soros when he famously “broke the Bank of England” by shorting the British pound in 1992 and reportedly raking in more than $1 billion in profits from that one trade. Hence, what he’s saying in the quote below is directly applicable to that huge win and to how I trade as well. The most important thing is making sure your winners are on average, much, much bigger than your losers. This is why I preach a risk reward ratio of at least 1:2 or higher.

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – Stanley Druckenmiller

4. Jim Rogers on patience and sniper-trading:

If you have read any of my articles you probably know that I am a huge proponent of taking a patient, low-frequency, sniper-like approach to trading. As the great commodities speculator Jim Rogers said below, you want to wait until there is essentially “money lying in the corner” and then all you have to do is go take it. What he means is, what for the obvious trades that have confluence behind them. Also, be patient and don’t feel like you have to “make back” money if you just lost, this is how traders quickly spiral out of control!

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.” – Jim Rogers

5. Jesse Livermore on being out of the market:

As any great trader knows, being out of the market or “flat the market” IS a position and is usually the right one! Wait for the right trade setup at the right time / spot on the chart, don’t just always be in the market just because you can. Trading can either be a highly-skilled, discipline-fueled way to make money or it can be your own personal slot machine where you continuously hemorrhage your money, it’s up to you to decide which way you will play it.

“Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.” – Jesse Livermore

6. Warren Buffet on self-discipline and risk management:

I always think about the following quote from the great Warren Buffet (who needs no introduction I hope). What he is saying is so succinct yet very powerful. One of the difficult things with trading is that you can follow a trading plan to the T for years and do very well through that discipline and self-control, but it only takes ONE trade where you’re over-leveraged and the market goes against you to wipe out a huge portion of all the money you’ve made. Not only are you wiping out that money quickly but all the things you did to make it; all the discipline and good habits can be erased in an instant. Hence, be sure you are always on your risk management game and always staying disciplined in the market.

“It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

7. Paul Tudor Jones on protecting your capital:

Capital preservation is probably the most important part of trading and the most overlooked. It’s quite sad because if more traders understood how to preserve their capital or just how important it is, there would be more successful traders.

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones

8. George Soros on being a “contrarian” in the market:

I consider myself a “contrarian” trader. What that means is that I am always looking for the unexpected and looking at the market through the eyes of a pro, not an amateur. The amateur bets on the “obvious” looking breakout, whereas the professional knows that false breakouts are very common and they may elect to wait for it to materialize rather than jumping in with the rest of the “herd”. George Soros is the epitome of a contrarian trader as his Bank of England trade so famously proved. If you want to see the actual chart of the time he shorted, you can see it here, notice there was actually a fakey pattern the day before the market dropped and Soros made his $1 billion.

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros

9. Marty Schwartz on learning to take losses properly:

Losing money in the market properly IS a skill. If you don’t learn to lose properly you will definitely not end up profitable at year’s end. You are going to have losses, that is a fact. How you deal with them and how big you allow those losses to be, are the variables that you control. So, control them or else they WILL control you.

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.” – Marty Schwartz

10. Bruce Kovner on stop loss placement and position sizing:

The two most important components to risk management are stop loss placement and position sizing. They are connected as Bruce Kovner points out in the quote below. Your position size on a trade is determined by the stop loss because you must adjust your position size to maintain your desired dollar risk per trade so that you don’t exceed it, and the size of the position will vary depending on how wide your stop is. If your stop loss is wider you need to decrease the position size to maintain risk, if it’s narrower than you can increase position size. Generally speaking however, and especially for newer traders, wider stop losses are better.

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” – Bruce Kovner

11. Paul Tudor Jones on not getting over-confident after winners:

Do you want to know the quickest way to lose money in the market and blow out your account? Get cocky, get arrogant / overconfident, whatever you want to call it, when you start getting like this you are all but sealing your fate as a losing trader. You do not control the market, you only control your reactions to it and actions within it. Just because you hit a few winners in a row doesn’t mean you’re now a super-trading-genius who will never lose. Remember: there is a random distribution of wins and losses for any given trading edge in the market and if you don’t know what that means then please click the link above and read the article.

“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. My biggest hits have always come after I have had a great period and I started to think that I knew something.” – Paul Tudor Jones

12. Marty Schwartz on not over-trading:

Ah, over-trading, the death of most trader’s accounts. How can you avoid this you ask? Simple, schedule breaks from trading, write it into your trading plan and make it part of your trading routine. Don’t worry about missing out! FOMO is the most common mistake traders make. The market isn’t going anywhere and that means you have a never-ending opportunity stream from which you can ‘go fishing’ whenever you choose. This is part of the reasons trading is so awesome; you can make money and then take time off and then come back the market is still there with opportunities! The point is, you NEED breaks to reset and calibrate and to avoid getting over-confident and over-trading.

“I have learned through the years that after a good run of profits in the markets, it’s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it.”– Marty Schwartz

13. Jesse Livermore on the repetitive nature of the market:

In the following quote, Jesse Livermore is talking about the semi-predictable nature of the markets and how the same things tend to happen again and again over time. This is because human being’s responses and behaviors are very predictable and similar, generally speaking. Price action analysis allows us to spot repetitive patterns that clue us in on impending price movements in the market. These patterns have worked for centuries because of the fact that human behavior is repetitive and predictable. Hence, when you learn to read the price action on the charts you are learning to read the behavior of all the people participating in that market and what their collective behavior may lead to next.

“I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.” – Jesse Livermore

Have you ever not taken a trade and then looked back in hindsight and wanted to kick yourself? Ever entered a great trade and exited too early due to low confidence or over-thinking it, only to see the trade go on to be a huge winner? How often do you find yourself in these situations or similar?

Truthfully, these situations are unavoidable sometimes, but if you’re finding that you are in a constant state of frustration and regret with your trading decisions you need to do something about it.

What if there was a way to reduce these trading errors and the mental pain that comes from them? What if you could start getting onboard these big trades that you talked yourself out of entering? What if I could help you cure this mental condition and finally set you free?

I have good news and perhaps bad news (depending on how you look at it). The good news is: This article is going to help you understand what is causing these problems and hopefully give you confidence to rectify the issue and start nailing some of these trades you keep letting get away. No more living in hindsight saying “I was going to take that trade, but…” or “I was going to let that trade run, but…”. The “bad news” is that I can’t do the work for you, I can show you the proverbial “door” to success, but it’s up to you to walk through it.

So, if you’re tired of standing in the same spot, getting nowhere fast, here is the path, all you have to do is start walking down it…..

1. Learn what recency bias really means and how to stop it

Humans tend to make decisions about the future by looking at the past and for good reason; this is usually a very helpful behavior that can prevent us from repeating the same mistakes over and over. However, although this evolutionary instinct has helped us move forward over the centuries, in trading, it tends to work against us. We call ourselves “optimists” when we learn from the past, and indeed that is typically a very optimistic thing to do, but in trading, in an environment with so many random outcomes, it can make us “pessimists” very quickly.

Allow me to explain with an example….

We tend to think that what happened recently in the past will impact what is about to happen next, and in MOST situations that would be true. However, in trading, there is a random distribution of winners and losers for any given trading edge. So, this means you never know for sure which trade will win and which lose, even if your edge is say 80% profitable over time. Even in a very small sample size of 3 winning signals and 2 losing signals on a random section of a chart, a trader could take 1 of the losing trades in that series and get mentally “shaken out”, meaning they freeze like a deer in headlights and skip the next perfectly good signal purely due to the recency bias in trading. In other words, they are being overly-influenced by the past / recent trade’s results when in reality, those outcomes have little to nothing to do with the next trade’s outcome.

An example of recency bias in action:

Now, let’s look at a recent real-world example of how recency bias can negatively impact your trading:

If your primary trading edge was pin bars on the daily chart time frame, you would have been taking the first two signals labeled “winning pin bars” on the chart below. These were long tailed pin bars, one of my favorite types. You could have profited from both of those or at worst, gotten out at breakeven, OK, no harm no foul.

Now, things get a little more interesting…

We can then see there were back-to-back pin bars that ended up losing. So, had you taken these two pin bars, if you let recency bias “get you”, there was a VERY slim chance you were taking the last pin bar to the right on the chart; which has ended up working quite nicely as of this writing. This is proof of why you need to continue taking trades that meet your trading plan criteria, despite recent trade failures or outcomes that you didn’t like. You (nor I) can see into the future, so to try and “predict” the outcome of your next trade based only on the last, is not only futile, but stupid.

• I will be honest with you, we discussed the two “losing” pin bars you see in the chart above in our daily members newsletter, when they formed. They failed, as trades sometimes do. But, we then also suggested traders consider buying the most recent pin bar buy signal on the far right of the chart, which you can see is working out quite nicely, DESPITE the previous two pin bars not working out. This, my friends, is called TRADING WITH DISCIPLINE. If you let that recency bias get you, you would have sat out, fearing another loss, then you’d be riddled with regret seeing the last pin bar working out without you on board. Regret, is very, very dangerous, this can lead to you jumping back into the market and making a ‘revenge’ trade (over-trading) and this of course results in more losing.
• Again, the concept I am trying to press home is believing in your edge and sticking to it. You must understand that the outcome of each trade is somewhat random and winners and losers are randomly distributed over the chart, as mentioned above. That doesn’t mean we will be taking every trade because we will filter our signals using the TLS confluence filtering model that I teach my students, but as we can see with this real-world and recent example on GBPUSD, when you see these signals, they very often lead to giant moves and we have to try to be on board a large proportion of them for our winners to out-gain our losers.

2. Don’t let fear of loss mentally disable you

The fear of loss, of losing again, is a very powerful catalyst for missing out on perfectly good trades. I am not denying that it’s difficult to take a trade after a losing streak, but you need to get to a point where it isn’t. As we mentioned above, it’s silly to keep thinking you will continue losing just because the last trade was a loser.

• To avoid this fear, or to extinguish it, you need to truly treat each trade as it’s own event and as an unique experience, because that’s exactly what it is. You definitely need to NOT over-commit to any one trade, meaning, don’t risk too much money! You need to protect your bankroll (trading capital) so that you can always feel confident and positive, so that you know you can lose a trade or several in a row and keep going and be just fine. Remember, your trading capital is your “oxygen” in the market, so make sure you always have plenty so that you can keep “breathing” properly.

Many traders often associate negative experiences or events in their personal lives with their trading. These “bad things” in our personal lives can manifest in our trading or finances (think about the addicted gambler losing all his money at the casino).

• This can become pretty complex, psychologically speaking, but just know that you need to be able to “compartmentalize” your personal life and negative things going on with it, from your trading. If that means you don’t trade for a week or two until a negative experience is not affecting you anymore, then that’s what it means. But, you need to protect your trading mindset and bankroll at all costs.

3. Don’t let overconfidence lead to a lack of confidence

We all start out optimistic and confident but the market typically shatters that quickly. We can set ourselves up for years of pain if we go out and try trading without the right study and practice.

We start out excited and motivated, read a few books, watch a few videos, do a course, and we go out and risk a giant chunk of our hard earned money.  This can destroy even a great trader in the making, some of the best traders don’t make it because they simply didn’t wait their turn and respect the market and the process.  One giant blow to finances can cost them the next decade mentally and financially. One series of losing trades can mentally disable even the most talented and smartest traders.

• You need to use your head in the beginning of your career and truly for the duration of your career.  Sure be confident, but first protect capital, study those charts daily and stick to that routine daily, grind it out week in week out and commit.  Practice your craft, master your craft. Be at one with the charts.

4. Develop your intuition and gut feel

Broken traders lack gut feel and intuition, they have stopped trusting themselves. We need to get you back up on the horse and get that 6th sense (gut trading feel) activated again.  Jesse Livermore, in his book Reminiscences of a stock operator, often talked about “feeling the market” and “knowing what was about to happen by a hunch or feeling”, to quote him:

A man must believe in himself and his judgment if he expects to make a living at this game. That’s why I don’t believe in tips. – Jesse Livermore

• If you identify and fix the three issues we discussed above, then your gut feel and intuition will develop slowly but surely, like an athlete’s stamina. Once this happens, when you go to take a trade you will begin to automatically “paint” a mental map into the future from the bars on the chart to the right and your gut feel intuition will serve you well in building the confidence to enter the trade. For a price action trader like you and I, this starts with learning to read the footprint of the market left behind by the price movement / price action.
• Another thing you can do to help develop your gut trading feel or intuition is put together a list of daily trading mantras that you read to yourself, like the following:

I am confident in my trading edge and my ability to trade it.
I will respect my filtering rules and pull the trigger on valid trades.
I will not hide behind my filtering rules to excuse me from pulling the trigger.
I trust my intuition and gut feel.
I will not overthink this next trade.
I do not care about the outcome of my last trade, it’s irrelevant to my next trade.

5. Understand that the stats don’t lie

Many times, traders miss winning trades because they simply think themselves right out of them as a result of not trusting or understanding the actual facts and statistics of trading. Let me explain…

As I touched upon earlier in this lesson, there IS a random distribution of wins and losses for any given trading edge. What this means is that, despite your trading edge having XYZ win percentage, you still do not ever know “for sure” WHICH trade will be a winner and which will be a loser, the consequences of this trading fact are three-fold:

• There is no point in changing your risk considerably between trades, because you do not know if the next setup will win or lose, despite “how good” it looks.
• You cannot avoid losing trades, all you can do is learn to lose properly. When traders try to avoid losses by doing things like thinking they can “filter” out losers or any other similarly hair-brained idea, they put themselves in a position to blow out their trading account because they are now trying to predict that which is unpredictable which leads to a whole host of other trading mistakes.
• Any one trade is simply insignificant in the grand scheme of your trading career, or at least IT SHOULD BE. If you are making any one trade overly-significant by risking too much money on it and become overly-mentally attached to it, you are setting yourself up for certain “death” in the trading world.

One of the most frustratingly difficult concepts to get across to beginning traders is that you truly do not need to make the process of technical analysis messy or confusing, at all.

Honestly, this piece of the trading “puzzle” should be the simplest and easiest, but for many traders, it’s the complete opposite…

They start off with dozens of indicators on their charts, 20 different websites open on their computer, literally trying to analyze hundreds of different variables at the same time. They do all of this to try and find a trading edge; something that will provide them with a “clue” of what might happen next in the market.

Guess what? This trading edge is sitting there right in front of them, hidden beneath the mountain of unnecessary distractions on their charts. That edge is, of course, price action analysis.

So don’t waste your time thinking there is some “Holy Grail” trading system based on indicators or software that will turn your computer into an ATM, because (sadly) there isn’t. I can tell you from 18+ years of live trading experience, the only thing you need to effectively analyze a price chart is your eyes, a computer, and the raw price action data the market supplies you for FREE, oh and maybe a lot of caffeine.

However, if you’re still not convinced that price action is truly the only thing you need to analyze the markets, then maybe one of these points will help to “knock” some sense into you:

1. Clean vs. Messy

As I clearly illustrated in my price action tutorial, one of the main reasons to learn how to read price action is so that you can declutter your charts and trade in a simple, “naked” manner, devoid of confusing and messy indicators.

The trading world is already filled with a myriad of conflicting and confusing advice, methods and approaches, so one of the biggest steps you can very easily take that will put you will ahead of other traders, is simply to remove all the “garbage” from your charts. Put simply, you do not need to trade with indicators, at all.

I recommend EVERY beginning trader start by learning to clearly map the charts and learn to listen to the market by simply learning to interpret and trade the price action. When it comes to technical analysis, simplifying the analysis portion is key, yet most traders do the complete opposite; they over-complicate it.

Take a look at the example chart below, look at all the things we can see just from analyzing a BARE indicator-free price chart:

• Periods of trending price action vs. Range-bound movement are very obvious
• Draw in the key horizontal chart levels
• Draw in any obvious price action signals

We can use the price action data described above to formulate an anticipatory trading plan, that effectively gives us a “window into the future” so that we can plan our next move. Which, as you can see in far right of the above chart, might involve waiting for a pullback to the support zone to look for a price action buy signal.

2. No News is Good News

One thing that I feel very strongly about and that is also a huge benefit of learning to read price action, is that by doing so you can ignore the news and all other unnecessary trading variables. You see, the price action reflects all the news as well as all other variables influencing it.

Less variables to analyze means you can avoid the “analysis paralysis” that hurts so many traders by causing them to try and take in too much and “make sense of it”. When trading with price action we really only need to worry about the 3 main components: Trend, Levels and Price Action Signals.

As I wrote in other lessons in which I discussed why I don’t trade the news, most of the time when trading news is released, the actual move from it has already happened. This has to do with the “buy the rumor sell the fact” effect that happens in the markets as traders and especially the bigger players anticipate what will happen when XYZ event is released or takes place. The point is, often, what would seem like the logical price direction as a result of a certain news event, is not the direction it moves in, but sometimes it is. So, to try and gain some “edge” by “predicting” a market move based on the news, is truly futile, especially when the price action already likely tipped you off to the next market move, before the news or ahead of it.

3. Price Action is The Language of Money

Price action gives us the best insight into the psychology of those trading the market. In fact, the price movement we see on a chart is really all just human psychology playing out via the markets. What one trader thinks is a good place to buy is what another thinks is a good place to sell, etc. and when more people think buying is the right move, price goes up, or down if more think selling is the right move. Despite whatever variables went into those decisions, the end result is the same: price movement reflected via price bars on a chart. So, cut out the “middle man”, so to speak” (the variables other than price action) and learn to read the “language” of money that is right there staring you in the face on the charts.

So, if price encompasses all beliefs and views of all market participants and any particular moment of time, then reading the price bars on the charts allows us to read what the market participants are saying or trying to say. Let’s look at an example:

In the chart below, we can see with a bullish pin bar, bears initially pushed price lower but buyers saw that as an opportunity and bought into that down move more aggressively, resulting in a long lower tail or wick, and a bullish pin bar that indicates price may move higher soon. The bearish pin bar shows us the opposite; that sellers won out and price is now looking “heavier” or bearish…

4. Price Action Lets Us Identify Clear Trading Signals and Repeating Patterns

If you know how to read the raw price action on the charts you also have a complete trading strategy that provides us with a defined set of entry and risk management rules whilst providing us with a high-probability edge.

For example, when you get a clear pin bar signal at a key chart level and ideally within a trend, you have the “Big 3” factors of confluence lined up for you: Trend, Level, Signal or T.L.S. This provides you with not just an entry but also a risk management strategy “built in”; you will base your stop loss placement at least partially on the signal bar as well as surrounding levels and your position size and profit target is set from that.

To get a better idea of how the T.L.S strategy works so easily and effectively, take a look at the chart below:

A simple set of parameters: Trend, Level, and Signal can provide us with some very high-probability repeating price action setups:

Through self-study of charts, it becomes apparent that price action signals and other price action patterns tend to repeat themselves over and over, across time. Once we learn to identify these signals in real-time and start to develop trader’s gut feel and intuition, and start trusting ourselves, these signals and patterns will begin to “pop out” at you more and more. It will be almost as if the market is “talking” directly to you…

5. A Minimalist Approach is Often Best

Minimalism is a way of life for some people, and it’s something I am very attracted to and try to model in my own life in many ways. Having less, means you have less to worry about, less problems, less to think about. Most people end up buying stuff they don’t need and that they end up realizing they don’t even want. The results are in: “Stuff” doesn’t make you happy. Time, freedom, spending time with loved ones, not having to worry about money constantly; these things make you happy.

What does this have to do with trading? Everything.

I wrote an article on a minimalist guide to trading which you should definitely read. The basic idea of it is that doing less; thinking less, analyzing less and TRADING LESS is what ends up as the catalyst for trading success. You truly need to minimize your interactions with the market, from how many trades you enter to how often you check on them once they’re live, to how many times you open your charts. Less is More and it’s the way you make money faster, trust me.

Conclusion

In my early days of learning how to trade, I honestly felt like I was lost, perhaps some of you feel the same way right now. There is just so much information out there and much of it I would call “misinformation”, that a beginning trader really has to be able to filter the “good from the bad” quite well to know what is worth spending their time on and what isn’t.

After studying just about every indicator and trading system under the sun, and realizing they didn’t work as advertised, I finally came back to plain and simple price action trading. I quickly realized that this is what made the most sense and that I didn’t need all that other “crap” on my charts, which was just obstructing the REAL view of the market; the price action.

I have been trading with price action for well over 15 years now and it has proven itself time and time again. It’s simple yet highly effective and it eliminates the need to look at other variables, because everything truly is reflected via the price movement, you just have to know how to read it.

The trading tutorials I have produced for my students since 2008 are the exact type of real world education resources I wish I had access to when I started my trading journey all those years ago. If you apply yourself and stick with the core philosophies of reading price action, bar by bar, and keeping your overall trading methodology simple, then your chances of making it in the world of professional trading are increased substantially.

This blog and the hundreds upon hundreds of trading lessons I have authored, as well as my Professional Price Action Trading Course are here to help you dramatically fast-track your knowledge and help you achieve trading success sooner.

Cheers to your future trading success, Nial.