To win in a market where 95% of traders lose, you need an edge and an edge is NOT doing what the majority do. The professional trader knows this but the new trader, still thinks he can get rich following a cheap robot, trading to short term, trading the news, trading with a 30 pip stop etc. The tips below, are six tips which if you learn and apply them, will increase your profit potential while at the same time decrease risk which is the aim of all traders.
Look for Cross Rate Opportunities
All forex pairs are the same in terms of price movement. They all trend for long periods and all consolidate for periods and while most traders focus on the Euro and the other majors, this is a mistake. By looking at the crosses, you not only increase the number of profit opportunities have, you also have currencies with less speculative interest and which are a lot of the time less volatile and offer smoother trends.
Speculative interest is good but can create price spikes which make them difficult to trade. In many instances, the cross rates offer better long term trends and ones that are easier to hold.
Look for the Unexpected – the Hiesengerg Principle Applied in Forex
The more unexpected a price break is the more likely it is to continue than reverse and this makes the signal more powerful and the logic was neatly summed up by Bruce Kovner in “Market Wizards”. In the quote below he makes reference to the Heisenberg principle in physics which postulates:
“if something is closely observed, the odds are it is going be altered in the process” (Heisenberg principle in physics)
Translated into plain English terms this means - when know one expects the event and can see no logical reason behind it, the odds of trading the break are far higher than when they do. The concept behind this is “The less observed, the better the trade” so when a breakout or reversal occurs n which no one is expecting and it's uncomfortable for you to trade - go with it. If you feel uncomfortable taking a trade thats good - as trading millionaire Richard Dennis said to the legendary Turtles the more uncomfortable the trade, the better the profit potential is likely to be and it's obviopus why - only 5% of traders win.
See the Big Picture – Inter Market Analysis
What have the commodity contracts - copper, oil and dry freight Biffex got to do with Forex?
Well more than many traders think. Currencies don't move in isolation, they are part of the broader global economy and if you want clues to currency direction, you need to see the big picture and this means looking at inter market analysis to see what other contracts are telling you:
For example, big falls in copper always warn of a market recession and so does oil. Dry freight is a great barometer of world trade and global economic health. Of course, you have stocks and bonds you can look at too, for clues to currency direction but we always keep an eye on, the above commodities and they have helped warn us of some huge moves.
Learn the 80 – 20 Rule
In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth and the 80 – 20 rule applies throughout life and business for example:
The 80 - 20 rule in business for example, states the following: 20% of a company's clients will be responsible for 80% of the company's profits.
In Forex trading, the 80 - 20 rule simply means, 80% of your profits will come from just 20% of your trades. therefore by cutting back your trading frequency, you can enjoy greater profitability, with less effort.
The smart trader only trades when the time is right and the odds are heavily in their favour. Day traders lose money because they take low odds trades the world's top traders hold trends long term for weeks or longer so don't trade the low odds noise of the market. To win, you need to get into and hold the long term trends. If you cut your trading back, you will make less effort and make more money.
Learn to Use Stops Correctly
The mug trader, takes a position and then uses a 10, 20 or 30 pip stop loss and gets taken out by normal volatility. Of course, he blames the broker for hunting his stop or his luck but no professional trader would ever use such a tight stop. As Bill Lipushutz ( one of the biggest and best Forex traders of all time) once said - If you want to win at Forex, you need to focus on doing it on only making money from 30% of your trades - so your winners need to be a lot bigger than your losers.
If you keep getting stopped out by random volatility and trading to short term, you will lose. To win, you need to trade longer term and have your stop behind the majority.
If I am trading a position, my stop is NEVER where the herd have it - I.E a few pips behind an important level. It's behind the next level back, so I can be behind a general market reaction and stay with the trend.
Know the Answer to the Question Below or Lose!
What's Your Trading Edge (defined) That will allow you to win when 95% of all traders lose?
Any pro trader can answer the above question - but most novices either can't or give a wrong answer like - I have a robot that wins with 90% accuracy I bought for a 100 dollars! Really? Forex is a brutal world and only 5% win and to succeed you need an edge you have confidence in – PERIOD.
All edges are different and mine for example would be - I am patient and wait only for high odds trades. When I hit one, I will take a meaningful risk for a long term gain and have a few indicators to time my move which I have used for years which give me total confidence and allow to hold the trade with discipline.
The above is what I would consider to be my edge, yours maybe different - but if you can't define your edge, you don't have one! So continue your education until you do or you will lose.
Final Words
Forex is a brutal world and while not many people win, the paradox is ANYONE can learn to win if they take some time and have the motivation to learn the right knowledge. The good thing for the pro traders is they know, the vast majority will never win.
Losers look for short cuts, insider secrets or the majic code of the market and don't learn the right knowledge. Because they have the wrong view of Forex trading and lack education, they can't trade with confidence discipline but you can if you want too Just learn Forex correctly, understand your edge, have confidence it and your all set for Forex trading success - it really is that simple.
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