Tag: trading map

Well it’s 2016, and another year has gone by. New Years resolutions have begun, gym memberships are sky rocketing and everyone is motivated to become more fit, drop a bad habit, pick-up a new hobby, or set new budgets. Although I have never been convinced that the dawn of a new year gives you any advantage of actually accomplishing any goal, what I do believe is that by writing out your goal on paper and establishing a date, will give you a much better chance of completing it.

One thing I have looked at for myself in the past couple years is a specific Money Management philosophy in my trading. At the end of each year, I take stock of how well (or horribly) I have traded for the year and make sure that my strategy is sound and still valid. This is an exercise I wish I learned my first day trading because it would have not only made me more money, but it would have substantially mitigated a good percent of my total losses in my first year. So what I am going to share with you now is a very simple philosophy I follow that has helped my trading massively.

Money Management

The difference between a new trader and a professional trader is this: A new trader thinks about how much money they can make, while a Professional Trader thinks about how much money they can lose. Do you see the difference? The moral of this story is that trading is risky, and although it is fun to think about all of the money you could potentially make, most new traders seldom like to think about the fact that one bad day of trading can cut their account in half, or how a misunderstanding in risk reward ratio can lead to taking far greater losses than positive gains. The market doesn’t care about how much money I have, what I lose or what I win. The market itself is pure and emotionless, but is driven by the emotions and beliefs of the people who participate in it.

This allows me to have a clear advantage over most traders if I can follow these simple rules while trading:

  1. Never risk more than 5% of my total account balance at any time
  2. Identify Profit target and risk out before getting in to any trade ever
  3. Never trade without a stop loss
  4. Use 1:2 risk/reward ration

(I will explain these concepts now)

  1. Never risk more than 5% of your account Balance!

This is very simple math and this will keep you from not only having a really bad day trading, but also helps prevent you from biting off more than you can chew. It answers a very simple question of what lot size should I be trading? Here is an Example:

If I have an account balance of $1,000, then 5% of that is $50. So, if I am trading a lot size equating to $1, then a -50 pip stop out would reduce my account by 5%. This means that the most I am ever willing to lose on any one trade is 5% of my total account. Now I am not advocating take a -50, but you get the idea. The dollar figure and lots size is proportional to your account balance.

  1. Identify Profit Target and Risk Out before getting in to any trade ever!

This is the mark of a professional trader and for me, this was a huge milestone in my personal trading. In order to understand what my risk and profit target is getting in to a trade I needed to really understand how the market works. When I can comprehend what I am looking at on my screen and I can say to myself (or anyone else) “this is good entry because….. and as a result of this I will know this trade is behaving when it does X and I will know it’s time to dump it if it does X,” then I am on my way to making some money in FOREX. This is how you make money. There is no luck involved. It comes down to being able to identify a trade set up and being able to pull the trigger. In actuality, this is the easy part. Let’s talk about where things really get hard…

  1. Never Trade Without a Stop-Loss

If I am trading from a place of indifference all the time, why would I ever need to run a stop-loss? The answer is that we are a human beings and no matter how emotionally stable we think we are there will come a day where the market spins you out and makes you feel like you know NOTHING about trading. Any long time traders know this to be true, no one is immune from taking losses. The mark of a true professional is how clever we can be, and gracefully we can lose (I’ll cover this in the next section). To protect ourselves from ourselves, we need to preset a stop-loss when going into any trade that is automatically set the moment I click in. It is there to serve as a safety net to ensure that my emotions will not get the best of me in the event that things go wrong, which they will.

  1. Using a 1:2 Risk / Reward Ratio

As I mentioned above when explaining the importance of a stop-loss, the next logical question is “what should my stop-loss be.” For me I use a 1:2 risk reward ratio. I will explain how this works. If my target PIP goal is 50 pips, then my stop should be set to -25. This way if I am making smart trades and my win Ratio is 50%, then I am profitable in my account. I’ll give you this analogy: If you flip a coin, you have a 50/50 chance of calling it correctly. Simple right? Trading should be no different and here is why: If I am only winning 50% of the time but I make 50 pips every time I am correct and lose on half that (-25) when I am wrong, then over a long period of time I am going to remain profitable in my account. This is what I meant when I was referring to losing cleverly and gracefully. Obviously, I don’t advocate blindly trading your account but I love the simplicity of this because you can become a profitable trader with a 50% win rate! Awesome.

Conclusion

An experienced trader trusts their methodology. If any strategy is going to be successful, you need to give it enough time to work. In the first year for me, it was all about gaining experience and trying not to lose money in my account. Every year after that has not become about how much money I can make, but about how little I am going to lose. My experience has shown me that the more I can depend on high probability averages (like a 50% win/loss rate on my trade) and trust them to be true, the more confident I become in the methodology. When a trader combines a sound methodology with experience, and solid foundation in Money Management and risk mitigation, then you are well on your way to becoming a Professional Currency trader.

Happy 2016!

Steve Wolf

Director of Enrollment

FX365 Institute.

 

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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:

 

1,2—HOME WORK

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.

 

3,4—LEARNING CURVE

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.

 

5,6—LOOK LEFT

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.

 

7,8—BACK TEST

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).

 

9,10—RIGHT EDGE

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.

 

11,12—QUICKER, FASTER

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.

 

13,14—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.

 

15,16—ACCOUNT COMPOUNDING

The direct result is, in not a very long time, dramatic account growth.  Again, straight forward cause and effect.

 

17,18—PIP VALUE

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.

 

19,20—EARNING CURVE

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.

 

Ira Barnes

Fx365i Instructor

ira.barnes@fx365i.com

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(Editor’s Note: For those who may not be familiar, WealthSmart was Fx365i’s original Forex training platform for the first few years of its existence.  In October, 2014, following two years of development, the institute released a beta version of a new platform called Smart Money Profile (SMP).  Due to the unprecedented levels of success that the majority of SMP students experienced, Fx365i began exclusively teaching with SMP in July, 2015.)

WealthSmart asks traders to wait for direction and momentum and then trade.  Wait for a bus to come flying through the intersection at 90 miles an hour and jump on and get your PIPs.  Who cares about the intersection street names; and, who cares about where the bus came from and where it’s going.  Just as long as it can’t easily make a U-turn or a sharp right turn, climb on board that bus and capture your PIPs and get off.   Where you get off, what street you’re on, who cares … you’ve got your PIPs, done, end of subject.  The trouble is that you don’t always know what kind of neighborhood you’re in.  There might have been a roadblock barrier just beyond the intersection that the bus blew through.  There might have been a big old sinkhole there.

Smart Money Profile—now the Market Maker course—asks traders to know not only what direction the market’s moving, but also, WHY is it moving in that direction?  THEN, AND ONLY THEN, should you trade!

Why is ‘why’ so important?  Because it tells you where the Market Makers are going and the destination.  You choose whether or not to go along for the ride and pick up your PIPs.  So, pull out your Market Maker content map and survey the landscape.  Generally, to protect yourself and your PIPs, decline rides in accumulation areas; always be ready to jump on board a profit release journey; and, selectively pick manipulation rides.

The long and the short of it is that by using your Market Maker map, you’ll more self assuredly and confidently capture more PIPs and higher probability PIPs because you’ll know what neighborhood you’re in.

In real estate and in Forex trading, using the Market Maker course, it’s ‘location, location, location.’  So, get your map out and learn how to use it; that is, REALLY learn how to use it.  After all, it’s the map to the gold.

Finally, be sure to wave to the vast majority of mapless Forex traders who are struggling and bumbling as you pass them by.

 

-Ira Barnes

Fx365i Instructor

ira.barnes@fx365i.com

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