This blog entry is going to be short, and I hope, sweet.
We all want to maximize our winning PIP count and minimize our losing PIP count for every trade that we take.
After a month of trading with the Market Maker Course software (Smart Money Profile), I’m convinced that limit-profit to stop-loss (reward to risk ratios) can be 4:1 to 6:1 and even higher. In Market Maker Course language, this means we can often look to capture 20-30 PIP profits with a 5 PIP loss as our risk management number.
HOW can we dare use such a small stop-loss of 5 PIPs? Because when the SMP charts are showing high probability setups and entries, and you’ve chosen the correct direction to take your trade, the price-action rarely violates by five PIPs or more the significant price levels shown as dots, average price lines, liquidity lines, grid and net lines.
WHY use just 5 PIPs as your stop-loss? Two huge reasons. First, the conservative reason. Simply put, if you’re wrong three trades in a row, your losses will amount to about fifteen PIPs. One successful Market Maker Course trade can be well over twenty PIPs, but, let’s keep it at twenty for this example. Do the arithmetic, one success completely cleans up three losses and even after adding in all the commissions, leaves you about even. To me this is really smart risk management.
Second, the aggressive reason. I’m assuming you’re a veteran, seasoned Market Maker Course trader, able to see and act on, mostly, high probability trades when they present themselves. By practicing conservative five PIP stop-loss trading and adding in an overall winning trade percentage of 70%, I can see weeks where you will be up ten, twenty or more PIPs over your weekly PIP capture goal.
If you choose, you can decide to go after a big winning trade without endangering your weekly PIP goal count. An example: your weekly PIP count is twenty above your goal; you see a setup/entry opportunity with an 80 PIP target; allow yourself, on this trade only, a wider 15 PIP stop-loss; this allows you the luxury of a wider negative drawdown on the way to a possible 80 PIP win. If you’re right, that’s some nice icing on the cake for the week; if you’re wrong, you’ve still met your week’s PIP goal.
Simply put, the five PIP stop-loss allows you to be a flexible trader, if you choose—in my case, mostly conservative, sometimes aggressive.
“I don’t really need to do screenshots. Trading is for smart people. Because I am smart, I will become good at trading soon enough. It takes time to send in screenshots – time where I could be in the market looking for another trade. I view turning in screenshots as a waste of time. Besides I know what I did right or wrong in the trade. I don’t really need someone else telling me (and everyone else) what I did wrong. I don’t really need to spend 15 hours a week on the webinar because I pretty much get everything right now. Thanks for the software and indicators. They are pretty cool. Peace out.”
Signed….a card carrying member of the 95% club
The sentiments above represent the mindset of someone who will join 95% of the masses and lose money as a FOREX trader. Renowned Stanford psychology professor Carol Dweck describes such thinkers as people with a “fixed mindset.” They believe talent is inherent: you either have it or you don’t. They believe hard work is for people who aren’t talented. Individuals with a fixed mindset always have the excuse, “If I really tried, I could do it… but really trying is a sign of weakness.” Also, because hard work takes them out of their comfort zone, they’ll stop trying at the first sign of an obstacle. People with a fixed mindset are hyper-sensitive to criticism because in their minds they are rarely wrong. They also don’t like seeing others succeed because that only exposes their inadequacies. The reason people with fixed mindsets think the way they do is because their desire to look successful is greater than their desire to actually be successful.
The imaginary letter writer above wouldn’t be able to stand sending in his negative trades. He wouldn’t want anyone to know that he failed at something and then couldn’t bear the thought of actually being criticized in public. It is simply too much for his ego to handle. Because his image is the most important thing, he will give some credit to others but only if he can maintain an air of “coolness” while doing so. Eventually, he will give up on FOREX trading because he can’t stand the losing.
We see this frequently in the sports world. A kid will grow up with athletic skills superior to his peers. He wins at everything. People start calling him the next LeBron because he has never had to work to win, he develops a sense that he should win simply by showing up. He graduates high school (barely) and signs with a big time college program. At this point, everyone expects to see him in the Rose Bowl, the Final Four, or the World Series. Then… he is never heard from again. Why? Because he meets other athletes just as talented as he is but with a different mindset … a mindset that propels them to higher levels. Below is a quick synopsis of the Fixed vs. Growth mindsets from Dweck’s book entitled, “Mindset” (you can click on the image for a larger view). In the next blog we’ll take a look at the Growth mindset and how it affects trading.
At the FX365 Institute, we are taught to “trade with indifference.” By trading at indifference, we prevent emotions and unnecessary worrying from influencing our decision making process. Indifference can be accomplished by having a solid trading strategy (good entry, two exits). Have you ever taken three excellent entries in a row and had all three go against you? I have. However, this doesn’t discourage me. I know that if I trust the process taught by the institute, I will become financially free – even if I have losing trades from time to time.
Sports psychologist Ken Ravizza teaches athletes to eliminate unnecessary stresses, or in essence, “Play with indifference.” Ken emphasizes that his pupils must control the controllable rather than spending precious emotional energy worrying about things they can’t control. In baseball, a hitter can’t control:
However, hitters can control two things: their preparation and how they choose to respond to each situation that is out of their control. As a hitter, I use the following solid strategy shared by many successful players. With no strikes, I’m looking for a specific pitch that I can drive to the gap or hit out of the park. With one strike, I’m looking for something I can hit hard. Although a curveball at the knees is a strike, I can’t hit it hard, so I won’t swing. Once there are two strikes against me, I’m looking to hit anything that is close to the plate so I don’t get out called on strike three. That is how I practice. That is how I prepare.
Here is a scenario: with the winning run on second, I’m at the plate with my hitting plan. As I step into the batters box for the first pitch, I’m looking for a pitch on the inside part of the plate that I can drive deep in the left field gap to win the game. However, the first pitch is a fast ball on the outside part of the plate. I take the pitch (i.e. don’t swing) for strike one. With one strike, I’m now looking for any pitch I can hit hard. The pitcher throws me a curve ball that is out of the strike zone. However, the umpire calls a strike. Now the count is 0-2. I’m looking to hit anything close to the plate because I don’t want to give the pitcher an easy strike out. The 0-2 pitch appears to be an inch off the plate and I hit a ground ball to the second baseman. He throws me out, and we lose the game. Of course I will be upset that we lose the game. However I can be satisfied with my at-bat because I know if I execute that strategy every time I’m in that situation, I will win more than my share of games. I know I won’t be able to win every game, but I will win enough to be successful. It is an emotionally intelligent response to not get discouraged after that at-bat.
What if the umpire had called the second pitch a ball (umpires will not make that mistake most times)? I would have taken the third pitch because it was off the plate. The chances I’m going to get a pitch I can hit hard and win the game go way up. True, that is not what happened. But those pitches are like my three good entries in trading. If I see those entries again, I will take them because I believe in my strategy. If I’m in that game situation again, I’m going to take the same approach… for the same reason. I have a proven successful strategy. Worrying about things I can’t control just throws me off my game, makes me lose focus, and keeps me from peak performance.
In trading, have faith in your preparation and don’t stress out when your trade goes against you. Trust the process.
The SMP (Market Maker course) trading program allows us to use 20-20 hindsight. That is, the charts don’t change over time as the WealthSmart (Moment in Momentum course) charts did. I say, “wow!”, because this is big deal; this really does allow us to use 20-20 hindsight to speed up our learning and earning curves. Let’s do it guided by the 20-20 words, below:
Yes, there will be some after trading session work to do. Spend a few hours a week (weekday evenings or on the weekend) reviewing the charts. You’ll see setups and entries that you missed during the live trading sessions.
You are responsible for the pace at which your personal learning curve moves ahead. I suggest that you not only review charts by yourself, but show and share interesting charts (setups and entries) with your fellow students and instructors. With the Smart Money Profile program you’re looking at and interpreting market maker content maps (paths to the PIPs). The more the better to speed up your learning curve.
Oh, by the way, don’t limit yourself to today’s charts and then tomorrow’s ‘today’s charts.’ Look left—scroll your charts to the left to last week’s and last month’s charts. It’s all good—more market maker content, more setups and entries to identify, more maps to practice reading.
This process of looking left, using history to advance your learning curve pace is known as back testing. There’s a wealth of information back there thanks to unchanging charts (20-20 hindsight).
Now, to best look left and back test I suggest that you make the experience as ‘realtime realistic’ as possible. You do this by emulating video replay of the price action … 5-minute candle by 5-minute candle and do the same with each 15-minute and 1-hour candle.
How? Put your ‘current candle’ on the right edge (so that you cannot see the future) of your chart and use the right and left arrows on your keyboard to move into the future or back, again, to replay. Use your ‘stop action’ to explain what you see developing on the charts. Talk about speeding up your learning curve, this is it.
Next, let’s look at the earning curve part of all this. It seems to me that we’re looking at simple and straight forward cause and effect happening here. Speeding up your learning curve means seeing more trade setups and entries sooner rather than later in your student experience. What follows directly will be distinguishing high quality setups and entries from those that are not so. You’ll get better, sooner, at reading and interpreting market maker content maps. Next, more winning trades and less losing trades—this is the cause. The effect—quicker to the lot ladder and faster up the lot ladder.
Yes, the lot ladder—the business spreadsheet that explicitly shows why we only need to capture a modest number (30-40-50 PIPs) of PIPs per week. Let the lot ladder, by way of reinvesting your profits, do the heavy lifting. This is the power of account compounding (similar to compounding interest that Albert Einstein called the eighth wonder of the world). The numbers grow slowly at first, but then take off.
The direct result is, in not a very long time, dramatic account growth. Again, straight forward cause and effect.
The consequence to this quicker and faster move up the lot ladder by way of your account balance growth is your all important PIP value growth. This is the ‘biggy’ in your career as a professional Forex currency trader. I’ll say it again and I’ll never tire of saying this, it’s not the quantity of PIPs captured, it’s the quality of PIPs captured by way of high probability winning trades as the result of accurate market maker content map reading (identifying high probability setups and entries).
In time (which you can speed up) you’ll arrive at the number one destination found on all of the market maker maps—the $100 and bigger PIP value.
Do as I’ve suggested, above, and I expect all of our earning curves will eventually go straight providing to each of us the earning power to live the good life.
First and foremost, the following vision for the FX365 Institute and its students is wholly my personal view as a student and instructor.
Why the change from two trading products to one? In my opinion, the answer is simple—to more quickly than ever before bring all of our students to higher levels of success as professional Forex currency traders.
Technically, the school’s reinvigorated mission statement is to get our students into real money accounts sooner, and, up the lot ladder faster. Ideally, by the end of year one, we’d like to see our students earning at least $1,000 a month in their Forex trading accounts and be on their way to $100 PIPs and beyond in year two.
So, what can our students expect as they are taught the Market Maker course employing the SMP trading software?
Certainly, we WealthSmart traders will, no doubt at first, go through a period of adjustment and uncomfortableness. It’s sort of like putting on a new high collar dress shirt and shiny new shoes. Initially, the collar might cause a little neck irritation and the shoes might feel a bit stiff to the feet; but, in time, these sartorial changes can ‘make you look like a million dollars.’ With the changeover to SMP, I believe it will not ‘make you look like a million dollars’ … but … perhaps … ‘make you a million dollars.’
What else? Certainly SMP offers more trading choices. As a major advocate of WealthSmart’s moment in momentum trading, I want to assure everyone that you can do precision moment in momentum trading with SMP, and, if you choose, you can extend your trades because SMP helps you see the Market Maker’s price targets and you may decide to go along for the ride. Taking SMP trading one step further, you can even decide to go beyond intra-day trading and do inter-day swing trading if that suits you. More choices, that’s a good thing.
Finally, as I see it, two really big game changers. First, with the SMP software, we now have a map with which to see each Market Maker business cycle play out. Many retail traders, by placing entry orders, provide the Market Makers with a map of where their entries, stops and profit-limits are located. We now get to turn the table on the Market Makers and to some degree get to see their entries, stops and profit-limits. This is a game changer.
The second game changer, as I see it, gives us the ability to speed up our learning curve. How? WealthSmart did not allow hindsight or historical studies of the charts because its indicators are signals that change size, color, shape and location. SMP does allow hindsight, that is, historical studies of the charts because it uses locations to provide information on Market Maker actions. Locations on a map don’t change.
I say … WOW! If we choose, we can do some homework called ‘back testing (looking left).’ We can invoke ‘hindsight is 20/20’ and look back at prior Market Maker business cycles of accumulation, manipulation and profit release using SMP’s location tools (boxes, dots, average price, best price, liquidity lines, grid lines). We can learn to read Market Maker maps that will help us find the gold.
So, let’s see … more choices in our trading, a map to help us navigate the Market Maker landscape, and the ability to personally speed up our learning process. The ‘long and short of it’ is clear—the school’s getting better at what we teach so that our students get better at trading. This is a win-win outcome.