Johnathon Fox’s 5 Steps to Successful Forex Trading
One of the most common questions I get asked regularly is “What are the things I should do in my trading” or “What are the steps I should be taking” etc., and whilst there are many different roads a trader can take, there are a few main steps that traders can take that will both fast track their journey and make their chances of success a lot higher if done well.
The following list of five steps are the steps that I recommend my Forex School Online trading students learn to do well if they want to become confident and successful Forex traders and it is also the list of attributes that all top price action traders have in common. There is a lot more to trading than just finding a candlestick pattern on a chart and as this article is about to go through; if you can start to learn to do these five steps well, your trading will reap the benefits.
#1: Learn to Read The Price Action Story – Not The Patterns
A lot of pattern traders are trading patterns or candlesticks and are confusing this for price action trading. There is far more to price action trading than finding a candlestick or pattern on a chart and then entering a trade.
Price action traders can trade the markets with raw price and nothing else because they learn to read all the clues that price is giving off through its behavior.
Learning to read the price action story involves learning to read how price moves and operates. Where as the
pattern traders are just looking for the same patterns, price action traders are looking for the price action story on the whole chart I,e; what is the trend? Is there a very big round number?
Is price breaking out? Is there a key support level? Is price moving into a near term level? Has price been consolidating for an extended period of time which means the breakout could be stronger than normal?
Has this particular market been cheaper than normal? Etc, etc. For the price action trader these questions all form part of the price action story that go a long way to finding high probability trades in all different market types and conditions.
2 – Concentrate on Where You Are Taking Your Setups From (and where they are going into)
When traders come to any type of trading they are automatically drawn to the entry systems. It is pretty easy to see why because as soon as you enter you are either going to make money or lose money and if you enter well you can make lots of money.
When it comes to price action, traders are drawn to the patterns and candlesticks and they often use these the wrong ways, which means instead of having success, they end up making trades in all the wrong spots. Examples of these are the pin bar and engulfing bar.
The best trades are always played from the best places on the charts and the trigger signal or entry signal such as the pin bar should only be used as confirmation to get into a trade, not as the main reason for the trade. The trigger signal should never be the only reason for a trade, they should be the confirmation.
Where the trades are played from and the price action story that goes along with it, is far more important than the trigger signal. The trigger signal is just the last candle on the chart on a chart full of many candles full of information.
This is why it is much better to mark your key daily levels on your daily chart and then wait for the price to move into your key level. When price does move into your key level you can then hunt for trades on the daily/4hr/8hr charts. This is a much better way to do it rather than looking for the trigger signal first and then looking for other support and resistance to line up because you are waiting for the market to come to you when you mark your key levels first.
In saying that; the trigger signal you use still has to be a quality, high probability setup that meets your rules and criteria. For a high probability setup you need to have both matching up together. When you make trades from solid areas with good quality price action triggers, you will then start finding high probability price action setups.
3 – Learn to Sit on Your Hands and Have Time Out of The Markets
Sometimes the market will trade sideways and be choppy. Sometimes the market will not be around it’s key levels that you want to make trades from and other times the market will be at it’s key levels, but it just won’t fire off any solid price action that you judge worth trading. That’s okay! It happens.
No matter what method you use for trading in the world, knowing when to pull the trigger and when to sit and wait is the key.
The traders who know the times to sit and hold and more importantly have the control to not make trades in this time have a huge advantage over those traders that just have to keep making trades.
You have to sit tight and learn to deal with this part of trading. The worst thing you could do is start making trades when this happens because the market comes and goes in waves.
What regularly happens is the market goes quiet during this period and the traders who can’t handle it, make trades and lose (because the trades were not worth trading) and the good traders sits and wait and go and do other things waiting for the next wave.
It does not take long at all and the next wave comes and a bunch of good quality trades all come at once. What happens is; the traders who lost the last set of trades now also play these good quality trades because they trade all trades. The other patient traders who have been waiting see that these are good quality trades and they pounce on these trades after sitting out during the quite time.
The traders who lost on the other quiet time trades are now fighting just to get back to break even because they wasted their money on the other trades they should not have taken, whilst the traders who waited now clean up and make profit on every winning trade they make, even though the patient traders have traded a heck of a lot less and also been away from the computer and done other things.
As I mentioned above; trades will often come in waves and the job of the trader a lot of the time is to save up their money and keep it well stocked in their account, waiting for the times when they have an overwhelming edge in the market.
Instead of doing what most traders do and just taking trades here, there and everywhere and spaying money all over the place, the best traders save their money and wait and watch whilst everyone else takes all kinds of trades and then when they see that they have their edge in the market they pounce. They make their money, they take their profit and they then wait again for the next time the market produces their edge.
4 – Learn to Swim Against The Tide And do Things Others Are Not
Everyone has the same universal instincts when it comes to trading and I discuss this in-depth in my article; The Only Way to Win at Forex is to Swing Against the Tide. One of these instincts is peer pressure and the need to compare against others. We constantly need to look at others and feel we are doing the right thing.
We never want to feel we are the odd one out or that we are different, or that if the crowd is going one way, we are going another. It takes a very rare person to go against this and go against what others are doing, but when someone does it normally brings about great results.
In Forex trading just above 30% of traders are profitable, which leaves 70% losing money. To be a profitable, traders need to stop following the crowds of people and what the majority of people are doing. People like to follow others because it gives them comfort, but the truth is the crowd is not successful and to follow and repeat what the crowd is doing is going to bring about the exactly same results.
5 – If You Want to be Long-Term Successful, Spend Time Working on Your Trading Psychology
This gets overlooked time and time again and traders either put it in the too hard basket or the “I will spend some time on it next weekend” routine. The simple facts are a lot of traders are not reaching their full potential and some are being held back from becoming profitable because of their trading psychology.
There becomes a point where a trader has an edge in the market and understands the method they are trading with, such as price action trading, but they are not making money so they start looking for other tools and things to help them become profitable.
They start looking at things like the news and economic events or even starting to possibly tinker with how they enter and manage their trades. Before they know it, they are now miles away from where they were. Before, they were on the cusp of making a profit and now they are taking on loss after loss and are ready to scrap the method all together and look for a new one. This would be a real shame because the trader is so close to being a super profitable trader and by starting a new method they would be about to start the whole long drawn out process of learning a whole new method and until they work out that it is their trading psychology that is holding them back, the long process is going to equate to at best the trader getting to break even and at worst making more losses.
The problem for this trader who just can’t seem to work it out is not the method.
In fact, the method was fine tuned after a long time of perfecting it and it would have been making solid profits if the traders emotional and psychological mistakes had not got in the way, such as; cutting profits too soon when shouldn’t have, taking trades off when shouldn’t have, moving to break even to early and cutting winners, not cutting losses and the list goes on.
The mindset of a trader and how they handle their emotions when making decisions is critical to their success.
Most traders understand this and yet only a rare few will spend time to study it and work at making sure they have a proficient mindset. It is those rare few spend time getting their mindset better equipped to thinking in probabilities and making better decisions that will reap the vast rewards.
Obviously there are many steps to becoming a successful trader and there are many different aspects that traders have to work on to become successful long-term profitable traders, however, these five steps are super important for traders on their path to becoming both confident and profitable. Make sure you keep working towards your goals every day and you don’t follow the crowd.
Safe trading and all the success,
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