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.
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:
(I will explain these concepts now)
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.
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…
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.
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.
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.
Director of Enrollment
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.
(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.
“If someone offers you an amazing opportunity and you’re not sure you can do it, say yes – then learn how to do it later.” -Richard Branson
As many of you know, there are some groundbreaking changes taking place at the institute this month. Most noteworthy of all is that the institute will now be using Smart Money Profile (SMP) as the school’s primary platform for instruction.
Before I share my list of concepts that Wealth Smart students need to know about the SMP platform, I would like to take a moment to celebrate Wade and Shane Guth for their amazing work developing and fine tuning the revolutionary SMP software. Additionally, due to Shane’s skillful and dedicated teachings, every SMP trader I know absolutely loves the platform. Kudos gentlemen!
I have been an SMP student for three months. With that in mind, here are the things you’ll need to know as a new student making the jump into the SMP program.
When a person first opens the SMP software to trade it for the first time, it may be a little intimidating. The multi-colored candles, lines, dots, boxes and the ever fluctuating rate indicator can easily create a sensory overload for newcomers.
Although the task at hand may appear difficult, once you understand the Market Makers business model, you will understand the genius and simplicity of the SMP software. By helping you discern what the Market Makers are doing, the SMP platform allows you to make predictive and logical assumptions about potential trading opportunities. As you learn to recognize the best trading opportunities, your win rate can soar into the 70 and 80 percent range.
From time to time, cross-traders at the institute (those that trade SMP and WealthSmart) explain that one of the greatest advantages of the SMP software is that the exit points for SMP trades are clear. The SMP platform is a map. As part of that map, the software clearly shows you points where the market may turn or possibly take a large breath. Once price approaches one of these points, it is easy to see your exit and book your profit.
Additionally, as you gain experience with the software, you will learn to finesse your entries so that you have less and less risk in your trades. Of course every trade is unique, so there is no rule that says, for example, “Keep every stop loss set at 6 pips.” However, within a relatively short amount of time, you will likely be able to keep your risk at a minimum as you enter into high probability trades. The ability to combine high probability entries with clear profit targets and low risk exits is a magical combination that can lead to long term trading success.
When you first get involved in the SMP program, you will find there is quite a bit of subjectivity to everything happening in the SMP arena. Some students may see the market preparing to go long, and others see it preparing to head in the opposite direction. No matter what you see on a particular day we encourage you to share it!
There are no guarantees in trading, but if we are able to gather our information together, we all benefit from the opportunity to make good, well-informed trading decisions.
For anyone who may be worried about making the transition from WealthSmart to SMP, fear not! You have already furnished great skills as a Wealth Smart student. Although the change may be uncomfortable at first, you will be surprised at how well you will adapt and become proficient with this truly phenomenal software.
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.