Most Traders are lured into the market by promises of gaining financial freedom quick and without effort. These traders think that they are simply going to purchase a system where all they have to do is follow the signals and they will become rich. While this is very appealing, it follows the same premise that if it looks too good to be true then it probably is.
The Reality: While you can make a great deal of money relatively quickly trading the markets, you will only do so by understanding the real business model behind the facade of the chart and trading by its rules.
Most Traders never make the turn into profitability when trading due to this common pitfall. We call it the Trader’s Prison.
The Trader’s prison shows how a trader can become caught up in a never ending cycle of system development. The main reason this happens is due to all the misinformation out there given to and accepted by new traders. They are taught that in order to succeed in the financial markets they need to develop a trading system that works for them and their personality. The trader will then develop their system within the same parameters that almost every other trader uses, price averages, general support and resistance, price patterns and supply and demand (aka over bought and over sold). They are then taught to formulate rules around their system that they are to strictly follow. They believe that this is what will create predictability and consistency in their trading.
The Reality: These traders do not understand that Smart Money purposely moves the markets within different cycles. The general terms used by retail traders to describe these markets is trending and ranging. Once the majority of traders calibrate their system to fit the current market environment Smart Money will intentionally change the market cycle so their business can operate at its maximum profitability level. This will in turn make most of all the retail trading systems lose money in the new coming market condition. This will then force these outside traders back into system development and put them into a never ending cycle that is emotionally and financially draining. Not to mention a total waste of time.
There are an overwhelmingly huge number of trader who subscribe to trading signal services designed to send you signals when you should buy or sell a given market. The traders that go down this path still fall under the 95% failure rate and for the most part never make sustainable money. Why is this?
The Reality: These traders never make it due to two reasons.
Reason 1- When you do not do your own homework on the market you are trading you lose touch with the pulse of the market and most likely will not be able to carry through the confidence needed to manage the trade into profitability and exit the trade in a repeatable and sound way.
Reason 2- The signal you are getting was probably formulated by someone who is no better at reading the market than you are and they have most likely designed the system they are trading with complete ignorance to the real business model of the market. The business model that turns the 95% chance of failure into a 95% chance of success.
Traders trade more money than their current skill is qualified to deal with. They increase their lot size when they are winning (which is ok). When they are losing they still increase their lot size to make up for past losses.
The Reality: Even if you have the money to fund a hefty trading account, you cannot buy skills. Skills are earned. Someone who is trading $100 per pip without proven consistency is a worse trader than someone who is trading $0.10 per pip that has proven consistency in their trading. The big difference is the educational cost of the person who will not put in the discipline of building or funding an account based on skill and consistency. It will potentially cost them thousands of unnecessary dollars learning that there trading account size has nothing to do with making a sustainable living trading Forex until their skill is proven.
Most people look at the trading screen as if it is them against price. The believe by incorporating different indicators and algorithms into their trading decisions it will allow them to effectively navigate the market and make huge amounts of money trading. They believe that the markets are price driven by supply and demand only and that anyone who is disciplined enough to follow a rules based system can make money in the markets.
The Reality: The markets are belief driven and there for the benefit of a very few who are versed in reading beliefs in the market. Think about it for a second. If you are a trader and are looking to enter a trade, you will not enter that trade until something happens, a belief is born in you that the trade you are entering will WIN. You will not place a trade if you think you will lose. This is true for every person trading the financial markets. 95% of retail traders make their trading decisions based on a belief created by technical indicators or fundamental reasons and 95% of them lose money. This leads to the fact the real edge in trading the market is not found in being an expert in reading technical indicators but becoming an expert in reading beliefs in the market. When you can read the beliefs behind the market you can set yourself up to profit the very same way Smart Money profits, by taking advantage of the completely predictable behavior of the 95% of traders that lose all their money.
To learn more about this type of Trading Methodology call and ask about the Pro Trader Program.
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SMART MONEY PROFILE is used to track “Smart Money” in the markets, as well as the masses of retail traders.
Unlike traditional indicator software, SMART MONEY PROFILE helps create a map of the market through the use of accumulation boxes, points of liquidity, and average price lines to help tell the markets story so you may figure out the ending of each trade with incredible accuracy.
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-The FX365I Team
Be sure about the direction:
While this seems obvious, it can be extremely easy to fall prey to a false trend. Smart Money counts on the retail trader being easily swayed one way or the other, which is why it is so important to identify what belief is being created in the market. Price broke out and started running? Awesome, now figure out whether it’s stop taking or the real thing. If you are wondering if it is the real move or stop taking, chances are it is the latter. Not being sure about the true direction is the reason many a trader has clicked into a trade only to have it slowly (and painfully) sail against them for a whole session before getting snapped out.
The perfect entry into a trade comes along every so often when we as traders are actively scanning the charts. Actually catching it at that perfect spot is an even rarer occurrence. Like a bald man in a hair salon, you are going to feel out of place. By their very nature the best entries will be completely counter intuitive in that they look and feel as if price is going the complete opposite direction. Luckily for us though, getting in at the perfect entry is similar to becoming ambidextrous; with some practice it can be done and become more natural. The best entries without fail include one (or both) of two things: 1)Taking out stops; 2)Bouncing off an average price level. If you can coordinate these two things into your entry you are going to minimize your risk and maximize your profit 99% of the time.
Your Trading Plan:
When considering a trade it is of utmost importance to have a solid trading plan. A trading plan will keep your profit taking consistent, your exits realistic, and the trade overall more bearable to ride as it ranges back and forth. A good trading plan consists of : 1) Entry 2) Profit Target 3) Exit for risk 4) Any variables to keep in mind (upcoming news, early exits due to accumulation, etc.). If you form your trading plan and do not like how far you actually need to put your stop to give it decent room, chances are there is a better entry coming. If there are a few places you think price might run to for profit, you should usually place your limit at the closest one. Nothing is quite worse than overestimating your trade and seeing a decent profit turn into a negative.
Managing your trade:
Okay so you entered into your trade and your eyes are glued to your screen. Time has stopped and your coffee is getting cold. At this point you are not sure if you are blinking involuntarily anymore. Why am I holding my breath? From here on out it is important to reaffirm your Trading Plan and to be realistic with yourself on how this is going to play out. However much we wish it would, it is probably not going to snap in 1 tick 50 pips in our direction (if only). When managing your trade be confident in your judgement and allow yourself to walk away from it. When checking on it, merely see if it has formed a new accumulation zone, or new information has shown itself (unforeseen manipulation). If neither of these things have happened then keep calm and let the trade play out. Time has no bearing whatsoever on whether or not a trade is going to play out in your favor.
Remember this rule about trading- When other traders are getting greedy, you need to be scared. When other traders are getting scared you need to be greedy.
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