Recovery from Failure

We immediately know when we’ve failed, made a mistake or broken the rules of our trade plan. Our internal dialogue is usually “Idiot, I know better than that,” or “Not again – what the hell is wrong with me?” or the famous “I promise I’ll never do that again!” During the course of figuring this out, we will have many failures. If we work diligently and purposefully, we can make the necessary corrections. This takes time and we have to be willing to forgive ourselves. But, we need to ask ourselves several questions to pinpoint and then repair our mistakes. Here are a few to consider:

Did you really follow your rules and trade system? Winners may lose, but they always follow their trade system to the absolute. They let their trade system do its job and understand that statistically they can expect losses. However, those stats are meaningless unless followed to the letter. Make sure you are following you rules and valid signals per your trade plan and trade system. If not, the odds are going to be stacked against you.

What should you have done differently? Do a thorough post-mortem. What was it that caused you to digress? Was it your trading mindset, outside distractions, platform execution errors or perhaps a lack of preparation? Record every trade and notice tendencies that lead to failures or mistakes. Make a conscious effort to target and correct these elements/behaviors one at a time.

To what extent did your perceived strengths become liabilities? What did you take for granted and how did it affect your performance? Did you have a series of winners and get over-confident? Did you have a series of losers and place a trade for revenge or because you were angry? You need to identify any emotions you are investing in your trading and revert back to practicing in a demo account until you can become consistently profitable. Getting this under control is critical for successful future results.

What is your estimated recovery/correction time? The difference between winners and losers is that winners don’t dwell on the past. Recognize the issues/challenges and move forward. Know that mistakes are part of learning and becoming proficient at any skill. The sooner you can get over your frustrations and regroup, the sooner you can be positive and productive to overcome them.

Can you quantify and assess the failure? Have you over-leveraged your account equity? Is the loss/mistake recoverable and if so, how long and how much will it take? Is your risk aligned with you trading personality and trade plan? Failure is an iteration in your overall trading journey, so try to make the next iterations ones of progress and success. Don’t over-think or over-compensate. Do an honest assessment of where the gaps exist and then fill them one at a time. Don’t be in a hurry to fix everything at once. Prioritize your issues and formulate a plan with a realistic time line to correct them.

Remember that failure is temporary if you are willing to invest the time and energy to become an expert. Always reflect on what you do well – especially with unconscious competence – things that are automatic and effortless. Recognize how you got there and use the same template in your approach to trading. Forgive yourself, but get focused. The goal is to admit and accept we will make mistakes, but the key to success is understanding we can only fix them if we know what they are and why we are making them. Create a list and work it. When you’ve checked off the last item, I promise you’ll be in a better frame of mind and your account will reflect your progress.

Slow, steady and diligent always wins the race in the markets.

Rick

Sensory Overload

Sensory overload . . . a big issue in trading and in developing your trading psychology.

It comes from all angles – information about what to do, what supposedly works, what to invest in (education), magic solutions, chart data, news, pundits, and rumors. Just Google “Forex” (250 million results) or “Trading” (1 billion results.) Where and when does it stop?

Our problem is fear of loss – believing that if we ignore anything it may be the one thing that propels us toward success – so we try to absorb it all. The fact is we can’t. But, we sure waste a lot of time and a lot of money trying to. I can save you some time and money right now – don’t buy any robots or magic buy/sell indicators. They’ll never work for you – and when they don’t, you’ll be more confused and frustrated. These distractions are a nothing more than an excuse to absolve you of responsibility and accountability.

The answer to your trading success is not more “stuff.”

Then there is distrust and skepticism. Whom do we trust after having purchased so much crap and being taken advantage of? Are there really any legitimate resources that we can relate to, rely on, and that have our best interests at heart? (There are a few and you’ve found one here, but I’m not going to waste time trying to convince you.) It is difficult to trust again after having felt like a sucker time and time again – embarrassed for still believing the overblown promises and sales pitches.

Sadly, it is often too late or at the expense of real value that we finally just start to give up or wonder if we can really become successful at this.

How do we ultimately filter through all of this noise? There is no one right answer. The best advice I can give is to do it through trial and error. You have to find what fits your own personality and proclivities. And then you have to act. You have to become good at assessing quickly – is the presenter/ making sense? Does he/she have a track record of results? Does the information/program account for all aspects of complete trading education delivered in a logical and professional manner? If not, move on. Chances are the “product” will be yet another in a long line of wasted time and resources.

If you are at the point where you are frustrated and just kind of spinning with no direction, I suggest you stop trading and start over. Get back to the basics. There are time tested principles that have worked for ions and marketers are counting on your laziness.

Look for information that will provide a solid foundation and then a realistic progression of Trade Plan Development. It should cover everything you need to be successful and independent – and that’s why you got into trading in the first place . . . right?

Here’s what you need to know and learn . . .

Foundation and Basics – Learn and understand the language of the market.

Platform and Charts – Become efficient at using and executing on your platform software.

Systems and Tools – Find indicators and processes that you can understand and implement.

Trade System and Testing – Develop rules for entry, stops and targets and then test and adjust to determine long term system profitability (no less than 200 occurrences.)

Practice and Repetitions – Practice executing your system on your platform for accuracy and dexterity on your demo account.

Live Trading and Psychology – Trade a micro account to develop and adjust your own trading psychology to control emotions and subjectivity.

Consistency and Transition- Track your results for consistency and execution. Once you can perform with confidence and reliability, think about a plan to transition to full time trading if that is your goal.

Risk and Trade Management – Explore expanding your strategies and formulate increasing your position sizing based on your historical performance data and account equity.

That’s a basic outline and, of course, there are more details involved in each step. The most important thing to remember is to master each step before moving on and do not skip any steps. Do either of those and you will create challenges and cost yourself thousands of dollars.

The very first thing to do is take a deep breath and relax.

You can do this.

Rick

Trading Traps

We have the benefit of learning from my good friend and awesome professional trader Akil Stokes.

“Trading Traps”

Many of us grew up as competitors whether it was on an athletic field, in a classroom, or at our first job. However, as we grow older some of us start to slowly lose that competitive drive as we become content with our current situations. I’ve come to notice that those who lose their drive usually fall into one of three main groups, Blamers, Settlers and Achievers. The Blamers group consist of people who have made no strides towards reaching their goals in life, (if they have any goals at all) and day in and day out they create an excuse for why their stuck in their current situation. They will often blame everything and everyone else for why they haven’t progressed instead of looking for a solution on how to better themselves and move forward . The second category is called the Settlers, which consist of those who have achieved their initial goals and have become comfortable with where they’re at in life. The fear of pushing forward and the thought that stepping out of that comfort zone may ruin their current situation keeps them content with where they’re at which is never taking any steps backwards, but not progressing either. The third and final category are called the Achievers. These lucky few have achieved more than they could ever imagine and have accomplished every goal that they’ve set for themselves. However, the problem is that they’ve achieved so much that they not only become bored with their current situation but they run into problems when trying to figure out what to shoot for next.

The same issue of losing our drive is one of the biggest factors that affects us in our trading journey. As experienced traders know, and newer traders will find out, this skill has a long learning curve and if you’re not 100% dedicated to becoming a successful trader then the chances are you’re going to fail. The number floating around out there says that only 10 -20% of traders become successful and those very same groups that I mentioned above, are the traps that the other 80% of traders fall into at some point during their journey.
Many new traders become stuck in the Blamers group trap right away because as soon as things get difficult they find an excuse for why they can’t be successful. “I just don’t have the time,” “I guess I’m just not smart enough,” “The markets are just against me,” etc. Excuses! Excuses! Excuses! And in all honesty anyone that wants to become a successful trader CAN one, it just doesn’t happen overnight.

Hopefully you’re dedicated enough to dodge the Blamers trap, but be warned because there is another one right around the corner called the Settlers group trap. However, when it comes to trading, this trap is almost the complete opposite of what I mentioned above. Instead of settling many traders actually become frustrated because a strategy isn’t showing the results that they anticipated. Therefore they bounce around from system to system only to get similar results. Many traders are very uncomfortable accepting the fact that it takes time to master any one strategy and there is NO GET RICH QUICK SCHEME in trading (despite what you may read online). So instead of taking their bumps and bruises mastering a strategy, they waste time by jumping ship only to struggle once more and repeat the process. In my trading journey I spent the better part of my training mastering a single strategy. However, as soon as I started trading live and it didn’t give me the initial results I wanted, I decided to jumped ship and go to another one. Like many of you out there, I didn’t want to put in the time necessary to master my strategy, I just wanted to make money and make money fast. To make a long story short I ended up losing a over $30,000 of someone else’s money in just a few months. OUCH indeed but as I look back I now realize that it was this event that lead me to refocus, chose a single trading strategy and really work on mastering it (along with my trading psychology). After making the switch I still struggled for about 3 months but I stuck with it because I could feel myself improving, even if my trading account said otherwise. Every once in a while I did get the urge to jump ship and try something new, but in the back of my head I knew that I would simply be starting the cycle over again and seeing how I was running low on capital, I didn’t have the time to take that chance. It was in the fourth month when everything took off and I’ve been a consistently profitable trader ever since.

This brings me into the last group, the Achievers. The traders that get stuck in this trap are the ones who have mastered a strategy and have been consistently profitable. You’re probably asking yourself, what’s so bad about that. The trap comes in the question of what’s next? I personally believe that staying in a single place for too long makes one comfortable, and when one becomes comfortable they often become lazy, and a lazy trader is just asking for trouble. I don’t care how experienced you are, it takes a certain amount of focus and dedication to be good at trading and if those things start to slip, so will your results.

So the question is how do I avoid falling into one of these trading traps? My answer… set goals and lots of them. We talk a lot about setting long term goals for what you want to achieve both in and outside of trading, and those are very important. But what I feel are just as important are the small, easily achievable everyday goals that we set for ourselves. Having a list of goals to attack everyday is a great way to stay motivated day in and day out. Also if you make these goals achievable, that feeling of accomplishment can do wonders for your psyche. As a kid in elementary school, I had a foreign language teacher that would give us candy each time we used a word correctly. Although it was my long term goal to learn how to speak this language fluently, I centered my focus on learning one new word each day so I could receive more candy. Setting and achieving these small goals kept me motivated and without knowing it I was slowly working my way towards my bigger ones. Trading isn’t any different.

Thank you for taking the time to read this and as always a big thanks to The Pro Trader Network for presenting me with an audience and a platform to share my thoughts.

-Akil L. Stokes

Thanks Akil . . . another great read with very valuable insights!

Rick

9 Things Successful People Do Differently

Here’s a great article from the Harvard Business Review. Although published in 2011, there some great suggestions here.

9 Things Successful People Do

Funny how timeless things that work are still fashionable.

Rick

Another List

I like lists – easy to follow and easy to keep track of. I have them posted all around my trade station and work area. Here’s another one from author Stephen Burns taken from his book “New Trader, Rich Trader.”

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The 18 Principles that Make Rich Traders so Successful
Trading in the stock market is like being in a Monopoly board game of ten total people and one person will end up winning the majority of everyone else’s money before the game is over. This is much like in trading where 10% of traders are profitable and the other 90% lose or just break even in the long term.

If the 1 in 10 Monopoly winners consistently won game after game then you would want to know what they were doing differently than the other nine consistent losers. Well I do not know what the Monopoly winners were doing but here is what rich traders are doing differently.

These principles were compiled after 13 years of successful trading and studying the winning traders throughout history, Livermore, Darvas, O’Neil, Micheal Covel’s Trend Followers, Jack Schwager’s Market Wizards and many more. I also sent these principles to many rich traders and market historians to double check my findings like John Boik, Alexander Elder, and Chris Kacher and many others. I got two thumbs up. So for a free short cut to learning how to win in the markets here you go. (Of course the next step will be do you understand these principles? Many are very counter intuitive.)

PSYCHOLOGY
New Traders are greedy and have unrealistic expectations. Rich Traders are realistic about their returns.
New Traders make the wrong decisions because of stress. Rich Traders are able to manage stress.
New Traders are impatient and look for constant action. Rich Traders are patient.
New Traders trade because they are influenced by their own greed and fear. Rich Traders use a trading plan.
New Traders are unsuccessful when they stop learning. Rich Traders never stop learning about the market.

RISK
New Traders act like gamblers. Rich Traders operate like a businessperson.
New Traders bet the farm. Rich Traders carefully control trading size.
For New Traders, outsized profits are the #1 priority. For Rich Traders, managing risk is the #1 Priority.
New Traders try to prove they are right. Rich Traders admit when they are wrong.
New Traders give back profits by not having an exit strategy. Rich Traders lock in profits while they are there.

METHODOLOGY
New Traders give up and quit. Rich Traders persevere in the market until they are successful,
New Traders hop from system to system the moment they suffer a loss. Rich Traders stick with a winning system even when it’s losing.
New Traders place trades based on opinions. Rich Traders place trades based on probabilities,
New Traders try to predict. Rich Traders follow what the market is telling them.
New Traders trade against the trend. Rich Traders follow the markets trend.
New Traders follow their emotions which puts them at a disadvantage. Rich Traders follow systems that give them an advantage.
New Traders do not know when to cut losses or lock in gains. Rich Traders have an exit plan.
New Traders Cut profits short and let losses run. Rich Traders let profits run and cut losses short.

The book has one chapter dedicated to explaining each principle in narrative form with a dialogue between a rich trader and a new trader.

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More reinforcement of the habits and behaviors that make the difference. Obvious to observe, but often difficult to put into practice. Think about each one of these behaviors and how they apply to your current trading habits and mindset. Work toward improving the good and removing the bad.

Rick

Self Sabotage Revealed

by Dr. Van K Tharp

In my peak performance training with traders, I give a strong psychological slant to the concept of self-sabotage. Self-sabotage typically occurs when one lacks the discipline to act in one’s own best interest. For example, when you have dessert, knowing it’s taboo because you are trying get healthy, you might call that self-sabotage. Or perhaps you know you need to exercise and you really feel good when you do so, but somehow you just feel lazy and want to skip the exercise period. Self-sabotage occurs in trading in many instances:

■ When you know you should follow the ten tasks of trading, but you don’t.
■ When you know you need to determine if your system will really work, but you just trade it anyway.
■ When you know you should develop a business plan for your trading, but somehow that just seems like too much work.
■ When you know you need to put a stop loss order in on a trade, but you don’t.

These and numerous other examples characterize self-sabotage. And these examples of self-sabotage typically occur when you have internal conflict between various parts of yourself and when emotions pop up that result in behavior that is not in your best interest and when you just avoid doing what’s important for success.

Many traders, however, avoid thinking about self-sabotage in this manner because they don’t like to go inside of themselves to see what is going on. They prefer to think technically about systems rather than notice what their beliefs are and whether or not they are useful. As a result of this tendency, I’ve developed another definition of self-sabotage that everyone can relate to: repeating the same mistake multiple times.

My definition of a mistake is when you don’t follow your rules. And if you don’t have rules, then everything you do is a mistake. And self-sabotage occurs when you keep repeating the same mistakes over and over and over again.

For example, you don’t raise your stop when the market makes a new high. When you skip it once, and your rules say you must do it, then it’s a mistake. When you do it three times in the same week, then it is self-sabotage. When you develop this attitude, can start keeping track of your mistakes and see how much they cost you.

For example, suppose you are about to be stopped out for a 1R loss. You don’t want to be stopped out, however, so you cancel the stop – which is your mistake. The position keeps going down and eventually you get out with a 3R loss. That mistake cost you 2R (i.e., instead of a 1R loss you got a 3R loss).

Now suppose you have a system that makes you 100% per year. However, you make a 2R mistake each week. At the end of the year, instead of being up 100%, you have lost money just because of your mistakes. Now can you begin to understand how trading reflects your behavior and that one of the critical things that you must do as a trader is to eliminate mistakes.

Take Time Off

Hello Traders,

Like any profession, burn-out potential certainly exists with trading. I used to look at my charts and literally see a blur. That’s when I knew I needed a break. The bad part was missing a lot of good trades while I was away. It took a while to get over the mindset of lost opportunities, but once I realized I can’t have everything, I began to relax, calm down and really appreciate time away from the markets. Just like a good vacation, a chance to recharge and regroup is important to stay sharp and on top of your game.

With the holidays upon us, the markets also go on holiday. Sure there are still plenty of trading opportunities, but you’ll begin to notice the ranges typically start to narrow this time of year. With all of the time I do spend trading, I like to get away entirely and leave town, turn off my computer and start for formulate my plan for next year. I revisit my financial goals, my past year’s performance and other personal checklists that involve my family. It’s a good time to get a renewed perspective. I always want to improve in every aspect of my life – not just trading. Getting away from the markets lets me take some time to focus on other important things, take inventory of the positive and negative of the previous year and make adjustments.

Many of us don’t take the time to establish goals, formulate a plan, or at the very least, put together an agenda. We just live day by day and moment by moment and assume it’s all going to work out. When I was younger, that used to be me. I realized without a plan, I was just wishing and hoping. With a carefully thought out plan, I now had a roadmap and I could measure progress against and direct my energy and efforts.

The other big lesson I learned is you have to play hard to make the hard work worth it. That is why taking time off is so important. You have to stop to reflect and spend time doing other things you enjoy. These are worthy distractions that will keep balance in your life and keep your psyche healthy.

Getting away also generates renewed enthusiasm – at least for me. Being away for a while makes me anxious to return; more committed, focused and determined.

Relax during the upcoming holidays and understand that the markets will be there when you return – you’re not missing anything.

Trust me. Upon returning you’ll feel more empowered, motivated and appreciate the skill you’ve acquired that can make such a remarkable difference for you and your family.

This is the perfect time of year to take a break.

The markets will be waiting when you return.

Happy Easter.

Rick

Daily Affirmations to Improve Your Trading

Some great information to keep you in a trading mindset and get you started on the right foot each trading day – Rick

Daily Affirmations Will Improve Your Trading by Nial Fuller

Anything you want to achieve in this world can be attracted to you by following the core principles in this article. For those reading this who have the goal to become a better trader – please take this knowledge, practice it and harness it’s power to improve your trading and your life.

An affirmation is defined as: “The assertion that something exists or is true”. Daily affirmations are a widely practiced method for attaining success and accelerating your ability to achieve goals.

Napoleon Hill is one of my favorite authors, and in my opinion he was the best motivational coach of all-time. He became famous by interviewing many of the most successful people of his time like Andrew Carnegie, Thomas Edison, Henry Ford and others, and the one thing that they all seemed to have in common was that they “acted as if” what they desired most already existed before they had it. Indeed, this is the core philosophy of Hill’s work and is the main reason why daily affirmations are so important to long-term success in any field, including trading. Here’s my favorite quote from his work:

“What the mind of man can conceive and believe, it can achieve” –Napoleon Hill

This is perhaps the most famous motivational quote of all time, I have it on the wall in my trading office and I read it out loud to myself every day, I strongly suggest you do the same. After reading this article you can check out Napoleon Hills Videos here to learn more about his amazing work on personal development and attaining success.

Here is a list of 17 daily trading affirmations that you can incorporate into your trading plan and that you should read out loud to yourself every day. Doing this will work to keep you motivated to practice proper trading habits and generally stay on the path to Forex trading success:

1. “What the mind of man can conceive and believe, it can achieve” – Napoleon Hill

This is the most important motivational quote of all time, which is why I have it listed again. If you haven’t read Napoleon Hill’s Think and Grow Rich Book, I suggest you do so in the near future, it’s the single best piece of motivational literature ever written in my opinion, and it will likely have transformative effects on your trading and your personal life.

2. “I am a successful trader”

If you repeat to yourself everyday that you are a successful trader, it will make you a lot more likely to do the things that are necessary to become one. If you do not believe you are a successful trader, you will never become one, as with anything else in life, you have to believe in your cause or goal before you can make it a reality.

3. “I am consistently following my trading plan”

You need to approach Forex trading as a business and be strategic and logical in following your trading plan; don’t deviate. If you’ve taken the time to formulate a comprehensive trading plan based on your trading strategy, your trading will be the most effective when you follow your plan, since you were objective and clear-minded when creating it.

4. “I have a Forex trading journal and I use it”

If you have a Forex trading journal and you actually use it, you will be far ahead of most traders. It’s critical to keep a running track record of your trading performance so that you have a tangible piece of evidence that reflects your trading ability or lack thereof. A trading journal will also give you something to stay accountable too and help you remain disciplined and organized.

5. “I practice proper risk management”

It’s important to remember that trading success is defined over a large series of trades, not over one or two. This means that you should not give too much significance to any one trade, and the way to do this is by never risking more than you are comfortable with losing per trade. By that I mean, never risk an amount that keeps you up at night thinking about or watching your trades. Remember to take small losses and that you are going to have losing trades; it’s just part of doing business in the Forex market.

6. “I trade according to what the market IS doing, not what I think it ‘should’ be doing”

We want to trade what we actually see on our Forex price charts, not what we “think” should happen or what we “want” to happen. At the end of the day, it doesn’t matter what you want the market to do; it’s going to do what it wants, so your job is to learn how to read its price action and take advantage of it, not fight against it.

7. “I will only take trades that give me a reward which clearly outweighs my risk”

The goal of any trader or investor is to make sure that the prospective reward of a trade clearly outweighs the risk involved. You need to gauge the market structure prior to entering a trade and make sure there is a logical reason for expecting that the risk reward on the trade is at least 1:1.5 or 1:2 or better.

8. “I will find other things to do besides watching my trades after they are live”

There’s nothing wrong with checking in on the market every 4 or 8 hours, but if you are sitting there addicted to your charts like a junkie, you are going to self-sabotage your own trades and probably end up losing a lot of money in the process. We have to learn to let the market “do the work” and just forget about our trades for a while after they are live. The set and forget forex trading strategy is something that I stand by and that I implement in my own personal trading, because meddling in your trades after they are live is an emotional decision and thus it’s usually the wrong thing to do. Find anything to do except watch your charts after you enter a trade.

9. “I am not emotionally affected by my profits or losses”

Both losses and profits have the ability to induce emotional reactions in us. A loss can cause us to want to take ‘revenge’ on the market and try and ‘make back’ the money we just lost. A profit can cause us to become overly-confident or even euphoric, which can cause us to deviate from our trading plan and take a trade that is lower probability than what we normally would take. Either way, you have to always be on guard against making an emotional trade immediately after a trade closes out, whether it was a winner or a loser. The best thing to do is to simply remove yourself from the markets for 12 to 24 hours after any trade.

10. “I try to trade with the dominant daily trend as much as possible”

I know you’ve heard this before, and I know it’s very cliché, but it’s also very true; the trend is your friend. I am often amazed at how many emails I get from traders telling me they are losing money in the markets and simultaneously asking me to comment on the chart they’ve attached to the email that shows a counter-trend trade on the intra-day charts. The easiest way to make money in any financial market is and has always been trading with the dominant trend. There are times when trading counter-trend is warranted, but until you’ve mastered trend-trading you should forget about counter-trend trading. Remember, don’t fight the dominant daily chart trend, instead, capitalize on it and ride the momentum until it ends.

11. “Instead of over-trading, I will be patient and let trading opportunities present themselves to me”

Don’t trade just because you feel like you have to or you want to…make sure there’s a real reason to do so and never trade when your pre-defined trading edge is not present. The downfall of most traders is over-trading, because most traders simply don’t have enough patience to trade forex like a sniper and not a machine gunner.

12. “I’m a professional trader and thus I will not engage in gambling my money in the markets”

Gamblers make random bets in casinos or elsewhere, and traders who don’t have trading plans or who don’t follow their trading edge are also gamblers. It’s really easy to click your mouse and put a trade on and hope to get lucky, kind of like pulling the arm of the slot machine at a casino. The difference is that you can actually develop and implement a high-probability trading edge like price action strategies when trading the markets. So, it’s up to you if you want to be a gambler or a trader.

13. “I will not interfere with my trades without just cause”

This one is similar to number 8, but it’s so important I wanted to touch on it again. Interfering with trades is usually an emotional reaction born out of risking too much or over-trading, both of which cause you to become overly attached to any one trade, which in turn causes you to over-analyze your trades and meddle with them once they are live. There are times when there’s just cause to interfere with your trades, such as a giant pin bar reversal that forms counter to your position, or some other opposing price action. However these instances are rare and it takes time and effort to develop your discretionary trading sense to the point where you can “effectively interfere” in your trades.

14. “News and fundamentals will not influence my trading decisions”

Traders who fall into the temptation to over-analyze the thousands of Forex news variables that occur each day, usually end up losing their trading accounts pretty quickly. All market variables are reflected via the natural price movement of the market, so by analyzing and trying to “figure out” what’s going to happen by reading economic news or watching CNBC you’re simply adding unnecessary and confusing variables to your trading approach.

15. “I am happy to take a profit and I will not be greedy”

Take your profits when your targets get hit, don’t change targets in an effort to try and get “just a little bit more” profit…These attempts to get a “little more profit” are usually in vain, and they usually lead to you letting a winning trade turn into a losing trade. Traders with smaller accounts especially need to take logical profits as they come, in order to build their accounts up and their confidence. If you get a 1 to 1.5 or 1 to 2 risk reward, there’s nothing wrong with taking the money off the table. Don’t fall into the trap of hoping that every trade you take goes on a parabolic run in your favor, the markets ebb and flow, meaning they don’t go in straight lines for very long.

16. “I invest in my trading education & myself”

Investing in your own education is paramount to success in any field. Forex trading is no different; whether it’s a book on trading psychology or the knowledge of an experienced Forex trading coach, learning something each day to make yourself a better trader will only improve your edge in the markets.

17. “I believe in my trading strategy completely and whole heartedly”

It’s critical to your trading success that you learn and trade with a strategy that’s proven and that you personally enjoy trading with. You have to follow it without deviation by remembering the fact that one loss does not negate the whole trading strategy. Don’t jump from one strategy or system to the next just because you stumble upon a few losing trades; losing trades are a natural part of any trading method. The key lies in losing trades properly and making sure you are trading with a strategy that is both simple and effective, like price action.

I trust that you’ve learned something from today’s article and I hope you write down or print out the above daily affirmations and read them out loud to yourself every day before analyzing the markets. Eventually, they will become cemented into your thinking and will thus turn into a habitual part of your trading routine. At that point, you will have transformed yourself from a losing trader to a successful and confident one.

Tendencies

Tendencies – typical behaviors or the way something is likely to react. We can use tendencies in the market to enhance our edge and take advantage of repeatable occurrences. The more time you spend in front of your charts, the more you will notice tendencies in the Forex market. These are several I have observed and picked up over the last 9 years. Remember, nothing in trading is absolute, but additional knowledge can increase our profitability and consistency.

Here are just a few:

1. The EUR/USD tends to reverse or create structure around the 20’s and 80’s. For example 1.3320 and 1.3380.

2. The GBP/USD tends to reverse or create structure at the 50’s and even handles. For example 1.5550 and 1.5600.

3. The USD and JPY tends to move in the same direction approximately 80% of the time.

4. If during the London and New York overlap there is a large sell off or rally (100+ pips), the afternoon of New York and often into the Asian session, the market tends retrace from the overlapping volatility and price action. I call this “drift” as the low volume and low volatility during these off-peak periods may take several candles. The move tends to be typically very slow but very deliberate. These can be low stress and high profit trades.

5. The market tends to be the most bearish or bullish before a trend reversal. A large impulse or “last gasp” often occurs just before a trend reversal. This is what creates a “hammer” or inverted hammer candle pattern.

6. A Fib retracement to .382 level of the AB leg tends to terminate at the 1.618 expansion of the AB leg.

7. A Fib retracement to the .618 or .786 level of the AB leg tends to terminate at the 1.272 Fib expansion of the AB leg.

8. A Fib retracement to the .50 level of the AB leg tends to terminate at the 1.414 Fib expansion of the AB leg.

9. The market tends to sell off faster than it rallies.

10. Structure leaves clues. The market tends retest previous levels of strong support and resistance.

11. Trading is 10% psychology and 90% strategy until you trade live with real money. It then tends to become 10% strategy and 90% psychology.

12. You can not develop a viable trading strategy based on fundamentals. Fundamentals tend to not be consistent, repeatable or reliable and therefore have no quantifiable or measurable metrics that can be incorporated into a profitable trading system.

13. The market tends to trend only 30% of the time.

The more you incorporate these tendencies into your trading sessions, you’ll be less anxious and more in control.

Please comment on other tendencies you have observed or use in your trading.

These are the nuances professional traders use to sharpen their skills and a focus on the best opportunities.
Rick

It’s What You Believe. . . and Act Upon

I saw this posted in an FF thread and thought I would comment. The poster referenced the book  RSI: The Completed Guide by John Hayden.  My comments are below each “lie.”

The 10 RSI Lies that Traders Believe:

1. A bearish divergence is an indication that an uptrend is about to end.

Bearish divergence on any oscillator is simply an indication that the current momentum is weakening, not the trend.

2. A bullish divergence is an indication that a downtrend is about to end.

Bullish divergence on any oscillator is simply an indication that the current momentum is weakening, not the trend.

3. The RSI will generally “Top Out”  somewhere around the 70 level. At this point we want to start thinking of getting short or at the very least exiting long trades.

The 70 level is an alert that momentum is beginning to reach an extreme range and the market might be overbought. We know that price can continue to move higher, but the 70 level signals us to look at other factors (S&R, Harmonics) for possible set-ups and potential retraces. These levels are nothing more than a cue to look further.

4. The RSI will generally “Bottom Out”  somewhere around the 30 level. At this point we want to start thinking of getting long or at the very least exiting short trades.

The 30 level is an alert that momentum is beginning to reach an extreme range and the market might be oversold. We know that price can continue to move lower, but the 30 level signals us to look at other factors (S&R, Harmonics) for possible set-ups and potential retraces. These levels are nothing more than a cue to look further.

5.  Whenever RSI is above 50, it is a bullish indications. If not long, find an excuse to get long.

Above the 50 level is commonly thought of as bullish bias, not a definitive indication of bullish momentum as the RSI can be above the 50 and flat which would indicate neutral bias. The fact that traders may act upon this observation can validate the inference that bullish bias exists. There is never any reason to “find an excuse to get long.” Acting on an excuse is trading suicide.

6. Whenever the RSI is below the 50, it is a bearish indication. If not short, find an excuse to get short.

Below the 50 level is commonly thought of as bearish bias, not a definitive indication of bearish momentum as the RSI can be below the 50 and flat which would indicate neutral bias. The fact that traders may act upon this observation can validate the inference that bearish bias exists. There is never any reason to “find an excuse to get short.” Acting on an excuse is trading suicide.

7. A failure swing is a significant event.

This is makes no sense to me at all.  A “failure” swing in price action still inevitably creates a swing high or low. 

8. The RSI is unable to indicate trend direction because it is only a momentum indicator.

Clearly when the RSI exhibits steep angles of ascent or descent, we can infer that current momentum and trend strength/direction will correlate.

9. The RSI is unable to indicate trend reversals because it is only a momentum indicator.

When the RSI resides in the extreme ranges,  we can infer that current momentum and trend strength tend to exhibit extreme limits and might weaken. Nothing is certain. Again, these observations are clues to look further, nothing more.

10. It is not possible to use the RSI to set price objectives.

Is might be possible, but why would you? You certainly could choose to use it, and with back testing, decide if using the RSI provides a positive expectancy along with other rules. There are many other better options, so using RSI would not be at the top of my list.

For most of us, RSI (among other oscillators), is just a tool to supplement other conditions incorporated into our rule set. The above list makes statements I find to be inaccurate. Speaking in absolutes always makes me want to play Devil’s Advocate. Posting this kind of list as if it were sacrosanct is not helpful and does not compel traders to want to read the book. Furthermore, the poster thinks he is helping the thread participants, but gives no context or connection to the system outlined in the thread. Just another blurb added to a clutter of confusing and irrelevant information.

RSI is typically  just one component of other trading rules and tools and this list implies over-reliance and overstated importance of the RSI. I didn’t write an entire book specifically about RSI and don’t claim to be an RSI expert, but I am an expert trader and use the RSI with great success as part of my trading arsenal albeit in many of the ways the author claims I should believe are lies. Acting on those beliefs (lies) has done well for me – so I guess I’ll keep the faith.

Rick